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- 

BAYS' 

AMERICAN 

COMMERCIAL  LAW  SERIES 

VOLUME 

I. 

CONTRACTS. 

VOLUME 

II. 

NEGOTIABLE  PAPER. 

VOLUME 

III. 

SALES     OP     PERSONAL 
PROPERTY. 

VOLUME 

IV. 

AGENCY; 

PARTNERSHIP. 

VOLUME 

V. 

CORPORATIONS. 

VOLUME 

VI. 

INSURANCE; 
SURETYSHIP. 

VOLUME 

vn. 

DEBTOR,  CREDITOR; 
BANKRUPTCY. 

VOLUME  VEIL 

BANKS  AND  BANKING. 

VOLUME 

IX. 

PROPERTY. 

9  Volumes,  $12.00. 

Separately,  per  volume,  $1.50. 

CASES  ON 

COMMERCIAL  LAW 

CONTRACTS,  AGENCY,  SALES, 

NEGOTIABLE  PAPER, 

PARTNERSHIPS, 

CORPORATIONS 


By  ALFRED  W.  BAYS 


Author  of  "Bays'  Commercial  Law  Series,"  Member  of  Chicago  Bar  and  Professor 
of  Commercial  Law  in  Northwestern  University  School  of  Commerce 


CHICAGO 

CALLAGHAN  AND  COMPANY 

1914 


* 


COPYRIGHT    1914 
BY 

Callaghan  &  Company 


T 

v«U4 


PREFACE 


These  cases  have  been  prepared  for  the  use  of  students  in 
Commercial  Law. 

"When  the  writer  took  charge  of  the  Commercial  Law  classes 
in  Northwestern  University,  some  years  ago,  he  doubted  whether 
he  could  profitably  use  cases  as  material  for  assigned  lessons, 
and  he  therefore  relied  upon  mimeographed  notes  in  the  form 
of  a  text,  using  cases  only  in  brief  paraphrase  as  illustrations, 
and  these  notes  were  afterwards  put  in  type  and  published  in 
the  form  of  small  hand  books.  But  it  was  noticed  that  when  the 
writer  dwelt  in  his  lectures  on  the  facts  of  actual  cases  and 
stated  the  court's  decision  and  read  from  the  opinion,  the  stu- 
dent seemed  deeply  interested,  and  retained  the  matter  better  in 
his  memory  than  other  part's  of  the  work.  From  this  experience, 
the  writer  became  convinced  of  the  value  of  the  use  of  cases,  in 
his  classes,  and  he  has  used  them  in  mimeograph  form  in  connec- 
tion with  text  for  some  time  with  considerable  success. 

The  ' '  case  system ' '  of  law  study  for  those  whom  we  may  term 
professional  law  students  has  been  so  widely  adopted  and 
approved  in  law  schools  that  anything  said  in  its  behalf  would 
seem  superfluous  and  presumptious.  A  word  or  two  in  its  justi- 
fication may  seem  desirable  when  applied  to  those  who  are  taking 
up  the  study  temporarily  and  briefly  for  business  and  general 
cultural  purposes. 

That  there  are  differences  of  an  important  nature  between  the 
professional  and  non-professional  student  of  law,  and  that  these 
must  be  dealt  with  in  practical  ways,  is  very  true.  For,  the  law 
student  makes  the  study  of  the  law  the  beginning  of  his  life  work ; 
its  importance  is  direct  and  vital.  His  ambitions,  plans,  hopes, 
his  keenest  self-interests  all  center  around  his  study.  Usually, 
also,  he  devotes  his  entire  working  time  to  its  pursuit.  He  realizes 
that  the  chief  objective  of  his  student  career  is  to  train  his  mind 
for  a  work  that  will  begin  after  he  leaves  school.  The  non-pro- 
fessional student  takes  up  the  study  of  law  in  an  entirely  different 


74.8647 


vi  PREFACE 

view  point.  His  chief  interests  are  elsewhere.  Usually,  only  a 
fraction  of  his  time  is  devoted  to  its  study.  And  in  his  school 
work  he  not  only  makes  a  beginning  but  an  ending  of  his  study 
of  the  subject.  He  has,  therefore,  an  entirely  different  goal  to 
be  attained  than  that  of  the  professional  law  student. 

To  teach  this  student,  under  these  circumstances,  law  in  any 
final  sense,  is  of  course  beyond  the  bounds  of  possibility.  The 
writer  once  heard  from  one  of  his  students  of  a  prodigy  who 
had  learned  commercial  law.  He  had  read  the  book  thereof  and 
mastered  the  subject.  He  could  solve  any  problem  that  could 
be  put  to  him.  Unfortunately,  the  rest  of  us  are  limited  in  our 
powers.  And  it  seems  to  the  writer  that  one  of  the  first  things 
that  the  student  should  be  taught  is  this:  that  he  is  entering 
upon  the  study  of  a  subject  that  is  as  broad  as  human  endeavor, 
of  endless  application,  and  of  ever  changing  condition,  and  that 
even  by  a  life  time  of  study  there  is  no  such  thing  as  finally 
mastering  it  or  any  of  its  branches.  To  offset  this  discouraging 
information,  he  should  be  advised  that  in  its  study  he  may  hope 
to  learn  certain  fairly  permanent  principles  and  rules  and  to 
acquire  information  that  will  enable  him  to  answer  for  himself 
many  questions  that  will  present  themselves,  and,  what  is  per- 
haps of  greater  importance,  that  he  may  recognize  legal  problems, 
as  problems,  and  avoid  pitfall  by  seeking  professional  advice, 
where  necessary;  and  that  he  can  find  no  better  subject  as  a 
study  for  general  cultural  purposes.  To  recapitulate,  the  stu- 
dent should  acquire : 

(1)  A  realization  of  the  character,  source  and  universality  of 
law; 

(2)  A  practical  working  knowledge,  enabling  him  to  be  more 
efficient  and  safe  in  his  business  affairs ; 

(3)  The  general  broadening  and  enlightenment  of  his  mind. 
In  the  accomplishment  of  these  ends,  the  cases  as  the  chief  part 

of  his  study  seem  better  adapted  than  mere  text  or  lecture.  In 
the  case,  the  student  sees  law  in  its  relationship  to  life ;  he  learns 
that  it  is  principle  applied  to  varying  sets  of  facts;  he  under- 
stands the  character  of  law  and  the  nature  of  its  development. 

The  case  not  only  informs  him,  but  it  has  a  dramatic  value 
that  arouses  and  holds  his  interest. 

The  stage  is  set  with  real  characters.  No  longer  is  the  truth 
unconnected  with  actual  human  conduct.  The  student  sees  men 
situated  as  he  has  been,  or  may  be  situated.  And  it  is  in  con- 
nection with  these  facts  that  the  judge's  exposition  of  the  law 


PREFACE  vii 

is  made,  wherein  at  some  length  he  announces  the  principle, 
applies  it,  and  limits,  distinguishes,  and  harmonizes. 

The  case  system  enables  the  student,  and  to  an  extent  requires 
him,  to  make  some  original  research  in  first  hand  material. 
It  encourages  independence  of  thought.  The  case  is  to  him 
somewhat  as  the  cadaver  is  to  the  medical  student. 

But  the  instructor  must  remember  in  using  the  case  system 
that  his  vision  is  not  the  vision  of  the  student.  The  student 
must  be  led ;  he  must  be  shown  the  way ;  he  must  be  kept  within 
the  proper  bounds.  He  must  be  led  up  into  the  high  places  and 
shown  the  field  that  he  is  to  traverse  so  that  the  whole  may  be 
properly  correlated  to  its  parts;  the  teacher  must  accompany 
the  inquirer  upon  the  journey,  explaining,  asserting  and  guiding. 
Hence  the  value  of  lecture,  of  text,  of  quiz.  Without  these  helps 
the  student  gropes  blindly. 

In  this  book  there  has  been  an  attempt  to  arrange  the  cases 
under  such  an  outline  and  with  such  explanatory  and  connecting 
notes  as  to  give  unity  and  completeness  to  the  subjects  covered. 
Two  difficulties  have  been  encountered.  One  is  to  present  the 
subjects  covered  within  the  range  of  a  moderately  priced  volume, 
and  the  other  is,  the  final  spurt  that  was  required  to  furnish  the 
book  within  the  time  planned  for.  But  on  the  whole  the  editor 
has  produced  a  book  fairly  satisfactory  for  his  own  purposes  and 
trusts  it  will  prove  so  to  those  who  have  indicated  or  may  indicate 
a  purpose  to  use  it. 

The  book  contains  neany  eleven  hundred  pages,  and  the 
development  of  some  phases  has  been  necessarily  limited,  but 
topics  of  a  merely  technical  or  peculiarly  confusing  character  or 
having  a  remote  importance  have  been  purposely  omitted  or 
slighted. 

The  book  should  be  useful  in  all  schools  teaching  the  subjects 
included,  except  perhaps  in  courses  of  very  elementary  nature. 
It  should  be  accompanied  with  such  text,  or  other  helps,  as  the 
instructor  deems  advisable.  Questions  follow  each  case,  and  it 
is  thought  these  will  be  very  helpful. 

It  is  perhaps  unnecessary  to  add  that  the  editor  of  these  cases 
has  made  very  free  paraphrases  of  the  facts,  and  made  omissions 
from  lengthy  opinions. 

ALFRED  W.  BAYS. 
Northwestern  University, 

Chicago,  November,  1914. 


TABLE  OF  CONTENTS 


DIVISION  A.    CONTRACTS 

PART  I.    THE  FORMATION  OF  CONTRACTS 

Chapter  1.     Introductory   2 

Chapter  2.     Capacity  of  parties  to  contract 

A.  Capacity  of  parties  in  general 4 

B.  Capacity  of  minors 4 

C.  Capacity  of  other  parties  under  disability 24 

Chapter  3.     Offer  and  acceptance 

A.  What  in  form  constitutes  offer  and  acceptance    30 

B.  The  validity  of  the  assent  in  the  offer  and  the 

acceptance    (mistake,  fraud,  duress,  undue 

influence)    48 

Chapter  4.     Consideration 

A.  Theory  and  nature  of  consideration 77 

B.  Examples  of  consideration 80 

Chapter  5.    Legality  of  Contracts 

A.  Legality  of  contracts  an  essential  element 101 

B.  Particular  classes  of  illegal  agreements 102 

C.  The  connection  of  the  illegality  with  the  agree- 

ment    118 

D.  Judicial  remedies  in  illegal  agreements 122 

Chapter  6.    Form  and  evidence  of  contract 

A.  Contracts  under  seal 132 

B.  The  statute  of  frauds 156 

C.  The  parol  evidence  rule 168 

D.  Oral  and  implied  contracts 179 

PART  II.  THE  INTERPRETATION  OF  CONTRACTS 

Chapter  7.     General  rules  of  interpretation 185 

Chapter  8.     Interpretation  with  respect  to  time  of  per- 
formance      188 

iz 


x  CONTENTS 

Chapter  9.     Interpretation  of  provisions  as  to  damages 

or  penalties 191 

PART  III.  THE  OPERATION  OF  CONTRACTS 

Chapter  10.     The  general  rule,  operation  of  contract  as 

between  the  parties 200 

Chapter  11.     Operation  as  to  undisclosed  principals. . .  200 

Chapter  12.     Operation  as  to  beneficiaries 201 

Chapter  13.     Operation  as  to  assignees 203 

Chapter  14.     Operation  to  create  rights  of  non-inter- 
ference by  third  persons 217 

PART  IV.    DISCHARGE  OF  CONTRACTS 

Chapter  15.     Meaning  of  discharge 225 

Chapter  16.    Discharge  by  performance,  breach,  tender 

and  impossibility 226 

Chapter  17.     Discharge  by  agreement,  novation,  altera- 
tion and  operation  of  law 246 

Chapter  18.     Remedies  upon  discharge 248 


DIVISION  B.    PRINCIPAL  AND  AGENT 

PART  V.    THE    NATURE    AND    FORMATION    OF    THE 
RELATION 

Chapter  19.     Definitions  and  distinctions 266 

Chapter  20.     Capacity  to  act  as  principal  and  agent. .  274 

Chapter  21.     The  authority  conferred  by  prior  act 278 

Chapter  22.     The  authority  conferred  by  ratification.  282 

PART  VI.    MUTUAL  RIGHTS  AND  DUTIES  OF  PRINCI- 
PAL AND  AGENT 
Chapter  23.     The  rights  of  the  principal  against  the 

agent 306 

Chapter  24.     The  right  of  the  agent  to  compensation 

and  damages 330 

PART  VII.     THE  RIGHTS  AND  OBLIGATIONS  OF  THIRD 
PERSONS 
Chapter  25.     Rights  of  third  persons  against  the  agent  337 
Chapter  26.     Rights    of    third    persons    in    contract 

against  a  disclosed  principal 354 


CONTENTS  xi 

,  Chapter  27.  Rights  of  third  persons  against  an  undis- 
closed  principal 376 

Chapter  28.     Knowledge  of  the  agent  as  knowledge  of 

the  principal 382 

Chapter  29.     The  admissions  and  declarations  of  the 

agent  390 

Chapter  30.     Responsibility  of  principal  for  torts  of 

agent  392 

Chapter  31.  Rights  of  the  principal  against  third  per- 
sons    404 

PART  VIII.    TERMINATION  OF  AGENCY 

Chapter  32.     Termination  by  agreement 411 

Chapter  33.     Revocation  of  authority 412 

Chapter  34.     Termination  by  operation  of  law 423 

DIVISION  C.    SALES  OF  PERSONAL  PROPERTY 

PART  IX.     FORMATION  OF  CONTRACT  OF  SALE 

Chapter  35.     Definitions   432 

Chapter  36.     Capacity  of  parties  and  formalities.  . . .  446 

Chapter  37.     Subject  matter  of  contract 447 

Chapter  38.     The  price 453 

Chapter  39.     Conditions  and  warranties 

A.  Conditions  and  their  effect 459 

B.  Express  warranties 460 

C.  Implied  warranties 469 

PART  X.    TRANSFER  OF  TITLE 

Chapter  40.  Transfer  of  title  as  between  buyer  and 
seller 

A.  Rules  governing  transfer  of  title 489 

B.  Reservation  of  title  by  means  of  documents. . .  513 

C.  Transfer  of  title  in  auction  sales 516 

D.  Risk  of  loss 520 

Chapter  41.  Transfer  of  title  as  affecting  third  per- 
sons 

A.  Estoppel  of  true  owner 522 

B.  Provisions  of  recording  acts,  etc 529 

C.  Sale  by  one  having  voidable  title 532 

D.  Retention  of  possession  as  fraud 533 

Chapter  42.     Documents  of  title 539 


xu 


CONTENTS 


PART  XI.  PERFORMANCE  OF  THE  CONTRACT 

Chapter  43.     The  performance  of  the  contract 542 

PART  XII.    RIGHTS    OF    UNPAID    SELLER    AGAINST 
THE  GOODS 

Chapter  44.     Remedies  of  unpaid  seller 560 

Chapter  45.    Unpaid  seller's  lien 561 

Chapter  46.     Stoppage  in  transitu 563 

Chapter  47.     Resale  and  rescission  by  seller 567 

PART  XIII.    ACTIONS   FOR    BREACH    OF    CONTRACT 
OF  SALE 

Chapter  48.    Remedies  of  the  seller 568 

Chapter  49.    Remedies  of  the  buyer 571 


DIVISION  D.    NEGOTIABLE  PAPER 

PART  XIV.    FORMATION  OF  NEGOTIABLE  CONTRACT 

Chapter  50.     Formal  requisites:     (1)  In  general 606 

Chapter  51.     Same:     (2)  The  writing  and  signature. .   607 
Chapter  52.     Same:      (3)    Unconditional   promise    or 

order  609 

Chapter  53.     Same:     (4)   Certainty  of  sum  and  pay- 
ment in  money 624 

Chapter  54.    Same:     (5)    Certainty  of  time  of  pay- 
ment— Demand  paper  637 

Chapter  55.     Same:     (6)  Words  of  negotiability 644 

Chapter  56.     Sundry  provisions  and  omissions 651 

Chapter  57.     Execution,  delivery  and  consideration . .   657 

PART  XV.    NEGOTIATION,  RIGHTS  AND  LIABILITIES 

Chapter  58.     Negotiation 665 

Chapter  59.     Holder  in  due  course — who  is 674 

Chapter  60.     Personal  defenses 702 

Chapter  61.     Real  defenses 712 

Chapter  62.     Liability  of  parties 721 

PART  XVI.    PROCEDURE  TO  FIX  LIABILITY 

Chapter  63.    Presentment  for  payment 732 

Chapter  64.     Notice  of  dishonor 744 


CONTENTS  xiii 

PART  XVII.    DISCHARGE   OF   PAPER   AND   PARTIES 
THEREON 
Chapter  65.    Discharge  of  negotiable  paper 759 

PART  XVIII.    BILLS  OF  EXCHANGE  PARTICULARLY 
CONSIDERED 

Chapter  66.     Definitions  and  general  provisions 767 

Chapter  67.    Acceptance 770 

Chapter  68.     Presentment  for  acceptance 779 

Chapter  69.    Protest   783 

Chapter  70.     Acceptance  and  payment  for  honor 786 

Chapter  71.    Bills  in  a  set 789 

PART  XIX.    PROMISSORY  NOTES  AND  CHECKS  PAR- 
TICULARLY CONSIDERED 
•  Chapter  72.     In  particular  of  promissory  notes  and 

checks   792 

DIVISION  E.    PARTNERSHIPS 

PART  XX.     GENERAL  NATURE  AND  FORMATION  OF 
PARTNERSHIPS 

Chapter  73.     Partnerships  defined  806 

Chapter  74.     The  formation  of  the  partnership 824 

PART  XXI.    FIRM  NAME  AND  PROPERTY 

Chapter  75.     The  firm  name 831 

Chapter  76.     The  firm  property 836 

PART  XXII.    MUTUAL  RIGHTS  AND  OBLIGATIONS  OF 
PARTNERS 
Chapter  77.    Partners  must  act  toward  each  other  in 

good  faith 841 

Chapter  78.    Sundry    rights    of    partners    in    going 

concern  852 

PART  XXIII.    THE  PARTNERSHIP  AND  THIRD  PER- 
SONS 
Chapter  79.    The  power  of  the  partner  to  bind  his 

partners 858 

Chapter  80.     Liability  of  partner  for  torts  of  his  co- 
partner   868 

Chapter  81.    The  duration  of  the  liability 875 


XIV 


CONTENTS 


Chapter  82. 
Chapter  83, 


PART  XXIV. 

Chapter  84, 
Chapter  85 

Chapter  86 
Chapter  87 

Chapter  88 


Remedy  of  partnership  creditors  in  courts 
of  law 880 

Rights  of  creditors  of  partners  in  courts 
of  equity 888 

DISSOLUTION  OF  THE  PARTNERSHIP 

Dissolution  by  what  acts 896 

Dissolution  by  lapse  of  time,  agreement 

and  transfer 897 

Dissolution  by  death  of  partner 899 

Dissolution    by    bankruptcy    and    court 

decree   907 

Liquidation  and  accounting  on  dissolution  909 


DIVISION  F.    CORPORATIONS 


PART  XXV.    INTRODUCTORY 

Chapter  89.    Definition  and  theory 917 

PART  XXVI.  CORPORATE  CAPACITY  AND  POWERS 

Chapter  90.     General  corporate  capacities 951 

Chapter  91.     Powers  of  contractual  nature 960 

Chapter  92.    Effect  of  acts  ultra  vires 979 

PART  XXVII.  STOCK  AND  STOCKHOLDERS 

Chapter  93.    Capital  stock,  shares  and  certificates 985 

Chapter  94.    Subscriptions  to  stock 989 

Chapter  95.    Liability  of  shareholders 996 

Chapter  96.    Transfer  of  shares 1008 

Chapter  97.  Various  rights  of  shareholders  in  going 

concern  1025 

PART  XXVIII.    DIRECTORS    AND    ADMINISTRATIVE 
OFFICERS 

Chapter  98.    Directors 1043 

Chapter  99.    Administrative  officers 1057 

PART  XXIX.    FOREIGN  CORPORATIONS 

Chapter  100.    Foreign  corporation  defined;  its  general 

status 1059 

Chapter  101.    Same  subject ;  continued 1063 


DIVISION  A 


CONTRACTS 


CASES  ON  COMMERCIAL  LAW 


DIVISION    A 

CONTRACTS 

Part      I.  The  Formation  of  Contracts. 

Part    II.  The  Interpretation  of  Contracts. 

Part  III.  The  Operation  of  Contracts. 

Part  IV.  The  Discharge  of  Contracts. 


PART   I 

THE  FORMATION  OF  CONTRACTS 

Chapter  One.  Introductory. 

Chapter  Two.  Competency  of  Parties. 

Chapter  Three.  Offer  and  Acceptance. 

Chapter  Four.  Consideration. 

Chapter  Five.  Legality  of  Object. 

Chapter  Six.  Form  and  Evidence  of  Contract. 


1 


CHAPTER   ONE 
INTRODUCTORY 

§  1.  Definition.  §  2.  Kinds  of  contracts. 

Sec.  1.    Definition. 

Case  No.  1.  Sir  William  R.  Anson.  Principles  of  the 
English  Law  of  Contracts  (Knowlton's  Edition).  Pages 
1  to  10.  "  *  *  *  Contract  results  from  a  combination 
of  the  two  ideas  of  Agreement  and  Obligation.  Contract 
is  that  form  of  Agreement  which  directly  contemplates 
and  creates  an  Obligation:  the  contractual  Obligation  is 
that  form  of  Obligation  which  springs  from  Agreement. 

*  *  *  Agreement  requires  for  its  existence  at  least 
two  parties.  There  may  be  more  than  two.  *  * 
The  parties  must  have  a  distinct  intention  common  to 
both.  *  *  *  The  parties  must  communicate  to  one 
another  their  common  intention.  *  *  *  The  inten- 
tion of   the   parties  must   refer   to   legal   obligations. 

*  *  *  It  must  have  reference  to  legal  rights  and 
duties  as  opposed  to  those  of  a  social  character.  *  *  * 
The  consequence  of  Agreement  must  affect  the  parties 
themselves.  *  *  *  But  Agreement  *  *  *  seems 
to  be  a  wider  term  than  contract.  It  includes  acts  in  the 
law  of  two  kinds  besides  those  which  we  ordinarily  term 
Contracts.  These  are:  (1)  Agreements  the  effect  of 
which  is  concluded  so  soon  as  the  parties  thereto  have 
expressed  their  common  consent.  Such  are  conveyances 
and  gifts  *  *  *  (2)  Agreements  which  create  ob- 
ligations incidental  to  transactions  of  a  different  and 

2 


INTRODUCTORY  3 

wider  sort.  *  *  *  Marriage  for  instance,  *  * 
So,  too,  a  settlement  of  property  in  trust.  *  *  *  These 
obligations  are  the  result  of  Agreement,  yet  they  are  not 
Contract.  *  *  *  Obligation  is  a  legal  bond  whereby 
constraint  is  laid  upon  a  person  or  group  of  persons  to 
act  or  forbear  on  behalf  of  another  person  or  group. 
*  *  *  And  so  we  are  now  in  a  position  to  attempt  a 
definition  of  contract,  or  the  result  of  the  concurrence 
of  Agreement  and  Obligation.  And  we  may  say  that  it 
is  an  Agreement  enforceable  at  law,  made  between  two 
or  more  persons,  by  which  rights  are  acquired  by  one  or 
more  to  acts  or  forbearances  on  the  part  of  the  other  or 
others.' '' 

Question  1:  Define  a  contract.  What  are  the  "two  ideas" 
from  which  contract  results? 

Sec.  2.    Kinds  of  Contracts. 

(Note:  To  indicate  the  scope  and  nature  of  contractual  lia- 
bility, we  may  classify  contracts  from  various  standpoints.  The 
great  historic  and  basic  division  of  contracts  is  that  into  formal 
and  informal  contracts.  Formal  contracts  are  characterized  by 
their  form,  and  are  binding  because  of  that  form  without  regard 
to  consideration,  which  is  the  essential  characteristic  of  informal 
contracts.  Formal  contracts  include  so-called  contracts  of  rec- 
ord, as  judgments  and  recognizances  and  contracts  under  seal, 
also  called  specialties.  Informal  contracts  are  those  contracts 
not  of  record  or  under  seal,  whether  in  writing,  oral  or  implied. 
Informal  contracts  are  the  more  important  in  modern  commercial 
life,  and  in  some  jurisdictions  formal  contracts  have  ceased  to 
exist  as  such  and  in  most  jurisdictions  have  lost  some  of  their 
characteristics.  The  great  majority  of  mercantile  contracts  are 
simple  or  informal  contracts.  Contracts  may  be  also  regarded  as 
bilateral,  when  in  their  inception  they  consist  in  mutual  prom- 
ises, or  unilateral  when  they  consist  of  an  act  done  on  one  side 
to  support  an  unperformed  promise  on  the  other.  Contracts  are 
also  executory  or  executed,  and  may  be  executory  on  both  sides 
(bilateral)  or  on  one  (unilateral).  Contracts  are  also  express 
when  they  consist  in  written  or  spoken  word,  and  implied  when 
inferred  from  conduct.  The  differences  herein  indicated  will  be 
elaborated  in  the  subject  matter  to  follow. ) 


CHAPTER   TWO 
CAPACITY  OF  PARTIES  TO  CONTRACT 


A.  Capacity  of  parties  in  general.        C.  Capacity  of  other  parties  under 

B.  Capacity  of  minors.  disability. 

A.    Capacity  of  Parties  in  General. 

(Note:  In  our  definition  of  a  contract  as  a  certain  type  of 
agreement  between  two  or  more  parties,  we  assume  that  the  state 
in  its  public  policy  permits  parties  to  enter  by  agreement  into 
obligations  toward  each  other.  To  the  question  "Who  may  make 
a  contract  ? ' '  we  must  return  the  obvious  answer  that  any  person 
in  the  community,  of  normal  legal  status  may  freely  contract. 
Who  are  those  of  abnormal  legal  status — those  upon  whom  for 
some  reason,  the  law  has  imposed  a  limitation  with  respect  to 
freedom  of  contract?  They  may  be  conveniently  grouped  into 
two  general  classes — those  who  have  not  yet  reached  the  age  at 
which  the  law  confers  upon  them  the  full  legal  powers  of  the 
individual  (whom  we  call  minors  or  infants) ;  and  those  who, 
without  respect  to  age,  are,  on  grounds  of  public  policy,  deprived 
by  positive  law  of  full  legal  powers.) 

B.    Capacity  of  Minors. 

§  3.  Who  are  minors.  §  7.  What  constitutes  ratification. 

§4.  The  general  rule:  Contracts  of  §8.  Minor's     contracts     for    neces- 

minors  voidable  by  them.  saries. 

§  5.  Minor's  contract*  voidable  un-  §  9.  Minor's  liability  in  tort  in  cases 

der  what  conditions.  connected  with  contracts. 

§  6.  Minor's    contracts    voidable    at 

what  times. 


CAPACITY  OF  PARTIES  5 

Sec.  3.    Who  Are  Minors. 

(Note :  A  minor  is  one  who  has  not  reached  the  age  fixed  by- 
law at  which  he  comes  into  full  legal  powers.  At  common  law 
this  age  was  twenty-one  both  for  males  and  females.  By  statute 
in  some  states  females  are  of  age  at  eighteen  years.) 

Sec.  4.    The  General  Rule — Contracts  of  Minors  Void- 
able by  Them. 

Case  No.  2.     Coursole  v.  Wyerhauser,  69  Minn.  328. 

Facts:  In  1856,  there  was  issued  by  the  U.  S.  govern- 
ment to  plaintiff,  a  half-blood  Sioux  Indian,  320  acres  of 
land  in  what  was  commonly  called  "half-breed  script." 
In  January,  1870,  when  the  plaintiff  was  20  years  of  age, 
he,  representing  himself  to  be  of  age,  for  a  valuable  con- 
sideration made  out  two  powers  of  attorney  purporting 
to  constitute  one  Dorr  his  agent  to  select  and  locate  the 
land  and  to  sell  and  convey  the  same.  Dorr,  in  1874, 
located  the  land  in  controversy  and  sold  it  to  Brown,  who 
resold  it  to  various  parties  until  it  came  by  mesne  con- 
veyances to  the  present  defendants.  Plaintiff  now  in 
1895,  brings  this  suit  to  contest  defendant's  title,  claim- 
ing that  his  power  of  attorney  in  1870  was  void  on  ac- 
count of  his  infancy,  and  that  his  conduct  since  that  time 
cannot  be  considered  as  ratification  on  the  principle  that 
a  void  act  cannot  be  ratified. 

Points  Involved:  Whether  contractual  acts  of  minors 
in  general  are  void  or  voidable.  Specifically,  wThether 
the  act  of  a  minor  in  appointing  an  agent  to  sell  his  real 
estate  is  merely  voidable  and  therefore  subject  to  rati- 
fication by  him,  or  absolutely  void,  and  therefore  of  no 
legal  effect. 

Mitchell,  J. :  *  *  The  rule  is  that  the  act  to  be  ratified 
must  be  voidable  merely,  and  not  absolutely  void;  and 
the  question  remains — which  to  our  minds  is  the  most 
important  one  in  the  case — whether  the  act  of  a  minor  in 


6  CONTRACTS 

appointing  an  agent  or  attorney  is  wholly  void,  or  merely 
voidable.  Formerly  the  acts  and  contracts  of  infants 
were  held  either  void,  or  merely  voidable,  depending  on 
whether  they  were  necessarily  prejudicial  to  the  infant. 
Latterly  the  courts  have  refused  to  take  this  responsi- 
bility, on  the  ground  that,  if  the  infant  wishes  to  deter- 
mine the  question  for  himself  on  arriving  at  his  majority, 
he  should  be  allowed  to  do  so,  and  that  he  is  sufficiently 
protected  by  his  right  of  avoidance.  Hence  the  almost  uni- 
versal modern  doctrine  is  that  all  the  acts  and  contracts 
of  an  infant  are  merely  voidable.  Upon  this  rule  there 
seems  to  have  been  ingrafted  the  exception  that  the  act 
of  an  infant  in  appointing  an  agent  or  attorney,  and  con- 
sequently all  acts  and  contracts  of  the  agent  or  attorney 
under  such  appointment,  are  absolutely  void.  This  ex- 
ception does  not  seem  to  be  founded  on  any  sound  prin- 
ciple, and  all  the  text  writers  and  courts  who  have  dis- 
cussed the  subject  have,  so  far  as  we  can  discover,  con- 
ceded such  to  be  the  fact. 

"On  principle,  we  think  the  power  of  attorney  of  an 
infant,  and  the  acts  and  contracts  made  under  it,  should 
stand  on  the  same  footing  as  any  other  act  or  contract, 
and  should  be  considered  voidable  in  the  same  manner 
as  his  personal  acts  and  contracts  are  considered  void- 
able. If  the  conveyance  of  land  by  an  infant  personally, 
who  is  of  imperfect  capacity,  is  only  voidable,  as  is  the 
law,  it  is  difficult  to  see  why  his  conveyance  made 
through  an  attorney  of  perfect  capacity  should  be  held 
absolutely  void.  It  is  a  noticeable  fact  that  nearly  all 
the  old  cases  cited  in  support  of  this  exception  to  the  gen- 
eral rule  are  cases  of  technical  warrants  of  attorney  to 
appear  in  court  and  confess  judgment.  In  these  cases 
the  courts  held  that  they  would  always  set  aside  the  judg- 
ment at  the  instance  of  the  infant,  but  we  do  not  find 
that  any  of  them  go  as  far  as  to  hold  that  the  judgment  is 
good  for  no  purpose  and  at  no  time. 

"The  courts  have  from  time  to  time  made  so  many 
exceptions  to  the  exception  itself  that  there  seems  to  be 
very  little  left  of  it,  unless  it  be  in  cases  of  powers  of  at- 


CAPACITY  OF  PARTIES  7 

torney  required  to  be  under  seal,  and  warrants  of  attor- 
ney to  appear  and  confess  judgment  in  court.  See  Free- 
man's note  to  Craig  v.  Van  Bebber,  18  Am.  St.  Rep.  629 
(s.  c,  100  Mo.  584,  13  S.  W.  906) ;  Schouler,  Dom.  Eel. 
Sec.  406;  Ewell's  Lead.  Cas.  44,  45,  and  note;  Bishop, 
Cont.  Sec.  930;  Metcalf,  Cont.  (2d  Ed.)  48;  Whitney  v. 
Dutch,  14  Mass.  457-463;  Bool  v.  Mix,  17  Wend.  119-131. 
"Hence,  notwithstanding  numerous  general  state- 
ments in  the  books  to  the  contrary  we  feel  at  liberty  to 
hold,  in  accordance  with  what  we  deem  sound  principle, 
that  the  power  of  attorney  from  plaintiff  to  Dorr,  and 
the  deed  to  Brown  under  that  power,  were  not  absolutely 
void  because  of  plaintiff's  infancy,  but  merely  voidable 
and  that  they  were  ratified  by  him  after  attaining  his 
majority. ' ' 

Question  2:  (1.)  State  the  facts,  the  specific  question  pre- 
sented and  the  Court's  decision  in  the  above  case. 

(2.)  Why  was  it  important  to  determine  in  the  above  case 
whether  the  power  of  attorney  was  void  or  voidable? 

(3.)  What  was  the  early  test  whether  an  infant's  contract  was 
binding  on  him  ? 

(4.)  What  constituted  ratification  in  the  above  case? 

(5.)  State  the  present  general  rule  as  to  a  minor's  power  to 
make  a  contract. 

(6.)  Is  it  your  opinion  that  the  other  party  to  the  contract 
may  raise  the  point  of  the  infancy  of  the  minor,  in  order  to 
avoid  his  contract,  if  the  minor  himself  does  not  raise  it? 

(Note :  While  the  courts  of  the  United  States  are  in  unison 
in  holding  the  general  rule  to  be  that  the  contracts  of  a  minor 
are  voidable  and  not  void  [except  the  implied  contracts  to  pay 
for  necessaries  received  by  the  minor  which  are  neither  voidable 
nor  void,  but  binding] ,  they  differ  as  to  the  power  of  a  minor  to 
appoint  an  agent,  especially  agents  with  formal  powers  to  con- 
fess judgments,  sell  real  estate,  etc.  See  the  authorities  cited 
in  the  above  opinion.  See  also  Hiestand  v.  Kuns,  8  Blackf. 
(Ind.)  345;  Cole  v.  Pennoyer  (obiter),  14  111.  158,  contra  to 
above  case.) 

Case  No.  3.    Wuller  v.  Chuse  Grocery  Co.,  241  111.  398. 


8  CONTRACTS 

Facts:  Wuller,  while  a  minor,  subscribed  and  paid  for 
15  shares  of  stock  in  the  Grocery  Co.  at  the  par  value  of 
$1,500.  He  also  acted  as  secretary  and  treasurer,  and  was 
a  salesman  and  bookkeeper  of  the  corporation  at  a  salary 
of  $12.00  and  $15.00  a  week  for  about  two  years  and  a 
half.  At  the  end  of  that  time,  being  still  a  minor,  he 
brings  a  suit  to  recover  the  $1,500  so  paid,  tendering  back 
the  stock.  He  had  judgment  below  and  the  Grocery  Com- 
pany appeals. 

Points  Involved:  Whether  the  executed  contract  of 
a  minor  in  reference  to  personal  property  is  voidable  by 
him.  Whether  being  emancipated  or  in  business  makes 
any  difference. 

Dunn,  J. :  ''The  position  of  the  appellant  (defendant) 
is  that  an  infant,  having  advanced  money  upon  a  contract 
voidable  because  of  his  infancy,  cannot  rescind  the  con- 
tract and  recover  the  money.  *  *  *  If  the  fact  that 
the  payment  of  money  upon  his  contract  was  voluntary 
precluded  its  recovery,  the  right  to  avoid  the  contract 
would  be  no  protection  to  an  infant  against  his  inexperi- 
ence and  the  wiles  of  swindlers  and  cheats.  Such  vol- 
untary payment  may  be  recovered  upon  the  avoidance 
of  the  contract.  The  consideration,  or  such  part  of  it  as 
remains  in  the  possession  or  control  of  the  minor  must 
be  returned,  but  if  he  has  lost  or  expended  it,  so  that 
he  cannot  restore  it,  he  is  not  obliged  to  make  restitution. 
Contracts  concerning  personal  property  and  executory 
agreements  may  be  avoided  by  the  infant  either  during 
or  after  his  minority.  The  shares  of  capital  stock  of  a 
corporation  are  personal  property,  the  same  as  promis- 
sory notes  or  bonds.  An  infant's  purchase  of  such  stock 
is  voidable,  and  he  may,  at  his  election,  avoid  it  and  re- 
cover the  purchase  money.  The  appellee  having  offered 
to  return  the  stock  which  he  had  received  under  the  con- 
tract, was  entitled  to  the  return  of  the  purchase  money 
he  had  paid.  The  certificate  of  stock  held  by  the  appellee 
was  merely  the  evidence  of  his  rights  as  a  stockholder. 
The  contract  by  which  he  became  a  stockholder  having 


CAPACITY  OF  PARTIES  9 

been  avoided,  the  decree  properly  provided  for  the  can- 
cellation of  the  certificate,  which  amounted,  in  effect,  to 
the  surrender  of  the  stock  by  appellee  and  its  restoration 
to  appellant. 

"The  contract  of  an  infant  is,  in  general,  voidable  by 
him,  and  gains  no  additional  force  from  the  fact  that  he 
is  engaged  in  business  for  himself  or  is  emancipated.  The 
exercise  of  his  right  to  disaffirm  his  contract  may  oper- 
ate injuriously  and  unjustly  against  the  other  party,  but 
the  right  exists  for  the  protection  of  the  infant  against 
his  own  improvidence  and  may  be  exercised  entirely  in 
his  discretion.  The  fact  that  the  contract  has  been  ex- 
ecuted is  immaterial;  there  is  no  distinction  between 
executed  and  executory  contracts  so  far  as  the  right  of 
disaffirmance  is  concerned.' ' 

Question  3:  (1.)  State  the  facts,  the  question  presented  and 
the  decision  of  the  court  in  the  above  case. 

(2.)  May  a  minor  avoid  his  contract  as  to  personal  property 
before  he  becomes  of  age?    After  he  becomes  of  age? 

(3.)  Does  the  fact  that  a  minor  is  in  business  for  himself 
affect  his  contracts?    Suppose  he  is  emancipated? 

(4.)  Does  the  fact  that  a  minor  cannot  restore  what  he  has 
received,  under  the  contract,  affect  his  right?     (See  note,  p.  11.) 

(Note :  In  a  few  states  (e.  g.,  Georgia,  Iowa)  it  is  provided, 
that  where  a  minor  is  in  business  for  himself,  his  contracts  in 
respect  to  such  business  shall  be  binding  upon  him.  But  it  is 
held  that  one  who  merely  works  for  another  is  not  in  business  for 
himself  within  the  meaning  of  such  a  statute.  Bieckler  v.  Guen- 
ther,  121  la.  419.) 

Case  No.  4.  Derocher  v.  Continental  Mills,  58  Maine, 
217. 

Facts:  This  is  a  suit  brought  by  a  minor  against  Con- 
tinental Mills  for  25i/2  days'  work  at  $1.25  per  day.  The 
minor  had  agreed  to  work  at  least  six  months  and  not 
to  leave  except  upon  giving  two  weeks'  notice.  He  left 
before  the  time  agreed  upon  had  expired  and  without 


10  CONTRACTS 

giving  any  notice.  The  defendant  contended  and  the 
trial  court  held  that  the  defendant  was  entitled  to  have 
the  damages  caused  by  plaintiff's  leaving  deducted  from 
the  wages  he  would  otherwise  be  entitled  to  recover.  The 
minor  appeals. 

Point  Involved:  Whether  a  minor's  contract  to  perform 
personal  services  is  voidable  by  him.  Whether  upon 
abandoning  such  contract  he  is  entitled  to  recover  the 
value  of  his  services. 

Walton,  J. :  '  *  *  *  *  To  compel  the  minor  thus  to 
make  good  the  loss  occasioned  by  the  non-performance 
of  his  contract  is  virtually  to  enforce  the  contract;  and 
thus  to  enforce  the  contract  is  in  effect  to  abrogate  the 
rule  of  law  that  a  minor  is  not  bound  by  his  contract. 
We  presume  no  one  would  undertake  to  maintain  that 
an  action  would  lie  against  an  infant  to  recover  damages 
for  the  breach  of  such  a  contract ;  and  yet  it  seems  to  us 
that  there  can  be  no  difference  in  principle  between  de- 
ducting the  damages  from  the  amount  which  the  infant 
would  otherwise  be  entitled  to  recover  in  a  suit  brought 
by  him  and  recovering  the  same  in  a  suit  brought  against 
him.  Stripped  of  all  its  sophistical  surroundings,  we 
think  the  doctrine  contended  for  in  defense  amounts  to 
simply  this,  that  the  minor's  contract  not  to  leave  with- 
out giving  two  weeks'  notice  was  obligatory,  and  having 
violated  it,  he  must  pay  the  damage.     Such  a  doctrine 

cannot  be  maintained. 

n*     *     *     * 

"  Having  avoided  his  contract  to  work  not  less  than 
six  months  and  not  to  leave  without  giving  two  weeks' 
notice,  the  plaintiff  had  a  right  to  have  his  case  tried 
and  determined  precisely  as  if  no  such  contract  had  ever 
been  made."  (New  trial  granted.) 

Question  4:  (1.)  State  the  facts  and  the  court's  decision  in 
the  above  case. 

(Note :  See  case  No.  5  for  right  of  minor  to  avoid  his  contracts 
with  reference  to  real  estate.) 


CAPACITY  OF  PARTIES  11 

Sec.  5.    Minor's  Contracts  Voidable  Under  What  Con- 
ditions. 

(See  also  case  No.  3.) 

Case  No.  5.     Green  v.  Green,  69  N.  Y.  553. 

Facts:  Plaintiff  sues  defendant  for  trespass  to  his 
real  estate.  Defendant  answers  that  the  land  is  his  own. 
Defendant,  who  is  the  son  of  plaintiff,  transferred  the 
land  to  his  father  for  $400,  defendant  being  at  that  time 
18  years  of  age,  now  an  adult.  Before  becoming  of  age 
defendant  had  wasted  the  money  received  for  the  land. 
After  becoming  of  age  he  entered  the  land  to  reassert 
title  thereto,  which  act  is  the  alleged  trespass  for  which 
he  is  now  sued. 

Point  Involved:  Whether  a  minor  as  a  condition  to  the 
avoidance  of  his  voidable  contracts  must  restore  the  bene- 
fits he  has  received,  or  account  for  their  value. 

Church,  0.  J. :  "  *  *  *  The  right  to  repudiate  is 
based  upon  the  incapacity  of  the  infant  to  contract,  and 
that  incapacity  applies  as  well  to  the  avails  as  to  the 
property  itself,  and  when  the  avails  of  the  property  are 
improvidently  spent  or  lost  by  speculation  or  otherwise 
during  minority,  the  infant  should  not  be  held  responsible 
for  an  inability  to  restore  them.  *  *  *  The  right  to 
rescind  is  a  legal  right  established  for  the  protection  of 
the  infant,  and  to  make  it  dependent  upon  performing  an 
impossibility,  which  impossibility  has  resulted  from  acts 
which  the  law  presumes  him  incapable  of  performing, 
would  tend  to  impair  the  right  and  withdraw  the  protec- 
tion. I^oth^ujDO^i^ajit^  think  a 
restoration  of  the  consideration  could  not  be  exacted  as 
a  condition  to  a  rescission^*     * — *rM — """"^ * — 

(Note:  "Where  a  minor  has  received  the  benefit  of  a  fair  con- 
tract, the  weight  of  authority  is,  that  if  he  cannot  restore  what 
he  has  received  he  cannot  sustain  his  own  suit  to  rescind,  though, 
had  he  not  performed,  he  would  have  a  perfect  defense  in  a  suit 
against  him,  notwithstanding  his  inability  to  restore.  Thus  in 
Case  No.  11  doubtless  the  minor  could  not  have  prevailed  in  a 
suit  to  recover  had  he  paid  the  tradesman.) 


12  CONTRACTS 

Question  5:  State  the  facts,  the  specific  question  presented 
and  the  court's  decision  in  the  above  case. 

Sec.  6.    Minors'   Contracts  Voidable  at  What  Times. 
(See  also  Case  No.  3.) 

Case  No.  6.     Scott  v.  Buchanan  et  al.,  30  Tenn.  468. 

Facts:  Suit  to  eject  defendants  from  certain  lands. 
Defendants  claim  title  through  a  deed  given  by  plaintiff 
during  her  minority.    Plaintiff  is  now  an  adult. 

Point  Involved:  That  the  deed  of  an  infant  is  void- 
able ;  the  time  at  which  it  may  be  avoided,  and  the  man- 
ner of  avoidance.  Also  what  constitutes  a  ratification 
by  which  the  right  to  avoid  is  lost. 

Totten,  J. :  "*  *  *  The  better  opinion  seems  to 
be  that  a  sale  of  chattels  by  an  infant  may  be  avoided 
during  infancy,  but  that  a  sale  of  lands  cannot  be  avoided 
by  him  till  he  become  of  age.  The  act  of  avoidance 
in  relation  to  his  personalty  is  allowed  him  during  in- 
fancy, as  it  may  be  the  more  necessary  to  his  personal 
interest,  but  is  not  allowed  him  as  to  his  realty,  because 
of  his  supposed  indiscretion  to  exercise  it,  and  as  its 
exercise  during  infancy  may  not  be  so  material  to  his 
interest.    *     *     * 

1 '  The  deed  of  an  infant  may  be  avoided  after  he  come 
of  age,  by  executing  a  deed  to  a  third  person  for  the  same 
land,  that  being  an  act  of  like  character  and  notoriety 
with  the  first;  or  by  making  an  entry  upon  the  land, 
reclaiming  it  and  declaring  his  dissent  to  his  deed  [See 
case  No.  5,  supra] ;  or,  as  we  apprehend,  by  suit  for  the 
land,  without  having  made  any  previous  entry.     *     *     * 

"In  the  next  place,  what  will  amount  to  an  affirmance 
of  the  voidable  deed?  The  court  instructed  the  jury  that 
this  might  be  by  express  ratification,  or  by  acts  which 
reasonably  imply  an  affirmance,  or  by  an  omission  to  dis- 
affirm the  deed  in  a  reasonable  time.    *     *     * 

"We  see  nothing  unjust  or  inconvenient  in  the  rule 
which  requires  the  party  within  a  reasonable  time  after 
he  arrive  at  full  age,  to  make  his  election  whether  he  will 


CAPACITY  OF  PARTIES  13 

stand  to  or  abide  by  his  voidable  contract  made  during 
infancy.  On  the  contrary,  it  would  be  highly  unjust  and 
inconvenient  to  the  other  party,  who  is  bound  by  the 
contract  and  has  no  right  to  avoid  it,  to  be  held  subject 
to  an  indefinite  period  to  his  right  of  election.     *     *     •■" 

Question  6:  (1.)  When  can  a  minor  disaffirm  his  deeds  of 
conveyance  ? 

(2.)  May  he  avoid  his  other  voidable  contracts  before  becom- 
ing of  age  ? 

(3.)  In  what  ways  may  an  infant  avoid  his  deed  of  convey- 
ance? 

(4.)  In  what  ways  may  one  ratify  his  deeds,  voidable  on  the 
ground  of  infancy  ? 

Note:  By  statute  or  judicial  decision  in  many  states  the 
"reasonable"  time  in  which  an  infant  may  disaffirm  after  he 
becomes  of  age  has  been  crystallized  into  a  certain  time,  as,  say, 
three  years,  but  he  may  of  course  deprive  himself  of  the  full 
statutory  period  by  a  ratification  before  that  time. 

It  should  always  be  borne  in  mind  that  an  act  of  ratification  is 
irrevocable.  When  one  has  ratified  what  was  before  that  time 
voidable,  his  right  to  avoid  has  gone. 

Sec.  7.    What  Constitutes  Ratification. 

(a)  A  minor  cannot  ratify.  (b)  Failure  to  disaffirm  as  ratifica- 

tion. 

(a)     A  Minor  Cannot  Ratify. 

Case  No.  7.     Sanger  v.  Hibbard  et  al.,  104  Fed.  455. 

Facts:  Sanger,  while  a  minor,  purchased  goods  from 
Hibbard  Brothers  and  others,  for  use  by  him  as  a  retail 
dealer.  Later,  Hibbard  Brothers  and  others  sued  out 
attachment  proceedings  against  the  goods.  Sanger, 
under  statutory  authority,  gave  a  bond  to  dissolve  the 
attachment,  one  of  his  creditors  becoming  surety  there- 
on, and  such  creditor  afterwards  receiving  the  proceeds 
from  the  sale  of  the  goods  in  satisfaction  of  his  claim. 
It  is  asserted  that  by  giving  the  bond  the  minor  (who 


14  CONTRACTS 

is  still  under  age)  ratified  his  contract  or  estopped  him- 
self from  setting  up  his  minority. 

Point  Involved:  Whether  a  minor,  while  still  a  minor, 
can  ratify  his  voidable  contracts  or  estop  himself  to  set 
up  his  minority. 

Caldwell,  Circuit  Judge:  "*  *  *  The  rule  is  well 
settled  that  an  infant  has  an  absolute  right  to  disaffirm 
and  avoid  his  contract  for  the  purchase  of  property  with 
which  to  enter  into  trade.  He  can  repudiate  his  contract 
to  pay  for  property  purchased  for  such  a  purpose,  and 
the  seller  has  no  redress  unless  the  property  purchased 
remains  in  the  possession  and  control  of  the  infant.  In 
such  case  the  infant 's  repudiation  of  his  contract  revests 
the  title  to  the  property  sold  in  the  vendor,  who  may 
recover  it  in  a  proper  action  for  that  purpose.  *  *  * 
It  is  not  claimed  that  he  (the  minor)  ratified  the  contract 
or  did  any  act  to  estop  him  setting  up  his  defense  after 
he  had  attained  his  majority,  and  the  claim  that  the 
execution  of  the  bond  to  dissolve  the  attachment  during 
his  infancy  operated  as  an  affirmance  of  the  contract  or 
as  an  estoppel  is  untenable.  *  *  *  A  minor  can 
neither  make  nor  affirm  a  contract  of  this  character  dur- 
ing his  infancy.  The  rule  which  precludes  him  from 
making  a  [binding]  contract  precludes  him  from  ratify- 
ing it.     *     *     *" 

Question  7:  Can  a  party  who  has  contracted  with  a  minor  set 
up  that  the  minor  has  lost  his  right  to  avoid  his  contract  because 
while  still  a  minor  he  ratified  it  ?    Why  ? 

(b)    Failure  to  Disaffirm  as  Ratification. 

(Note :  Mere  failure  to  disaffirm  after  becoming  of  age  (except 
in  respect  to  deeds  of  conveyance,  as  we  noticed)  is  not  ratifica- 
tion, but  there  must  be  some  accompanying  act  or  circumstance 
inconsistent  with  disaffirmance,  as  a  sale  or  use  of  the  property. 
Thus,  A  sells  B  a  bicycle.  B  uses  and  destroys  the  bicycle  while 
still  a  minor.  On  becoming  of  age,  B  's  failure  to  positively  dis- 
affirm, is  not  ratification  by  him.  But  if  B  sold  the  bicycle  after 
becoming  of  age,  or  by  his  conduct  or  language  fairly  showed  that 


CAPACITY  OF  PARTIES  15 

he  meant  to  stand  by  his  contract,  he  would  thereby  ratify  the 
contract. 

See  also  Case  No.  6  on  this  subject.) 

Sec.  8.    Minor's  Contracts  for  Necessaries. 

Case  No.  8.  Nash  v.  Inman,  (1908),  2  K.  B.  1,  1  Brit- 
ish Ruling  Cases  143. 

Facts:  Defendant,  a  minor,  was  a  freshman  at  Trin- 
ity College,  Cambridge,  in  October,  1902.  The  plaintiff, 
a  tailor,  sent  a  traveling  salesman  to  Cambridge  to  solicit 
orders.  The  salesman  heard  that  the  defendant  was 
spending  money  very  freely  and  he  called  upon  him,  and 
between  Oct.  29,  1902,  and  June  16,  1903,  the  defendant 
had  run  up  a  bill  of  $1,451  for  clothing  of  an  extravagant 
and  ridiculous  style.  Defendant  was  already  adequately 
supplied  with  clothing  by  his  father.  Plaintiff  sues  for 
the  price  and  defendant  pleads  infancy.  Defendant  had 
judgment  below  and  plaintiff  appeals. 

Points  Involved:  What  is  the  nature  of  the  liability 
of  a  minor'to  pay  for  necessaries  furnished  him?  What 
are  necessaries?  Is  the  test  solely  the  nature  of  the 
goods  sold,  or  must  the  minor's  actual  present  needs  in 
respect  to  such  goods  also  be  considered? 

Fletcher-Moulton,  L.  J. :  ' '  I  think  that  the  difficulty 
and  at  the  same  time  the  suggestion  of  hardship  to  the 
plaintiff  in  such  a  case  as  this  disappear  when  one  con- 
siders what  is  the  true  basis  of  an  action  against  an  in- 
fant for  necessaries.  It  is  usually  spoken  of  as  a  case 
of  enforcing  a  contract  against  the  infant,  but  I  agree 
with  the  view  expressed  by  the  court  in  Rhodes  v.  Rhodes 
(1890)  44  Ch.  D.  94,  59  L.  J.  Ch.  N.  S.  298,  62  L.  T.  N.  S. 
342,  38  Week  Rep.  385,  in  the  parallel  case  of  a  claim 
for  necessaries  against  a  lunatic,  that  this  language  is 
somewhat  unfortunate.  An  infant,  like  a  lunatic,  is  in- 
capable of  making  a  contract  of  purchase  in  the  strict 
sense  of  the  words;  but  if  a  man  satisfies  the  needs  of 
the  infant  or  lunatic  by  supplying  to  him  necessaries, 
the  law  will  imply  an  obligation  to  repay  him  for  the 


16  CONTRACTS 

services  so  rendered,  and  will  enforce  that  obligation 
against  the  estate  of  the  infant  or  lunatic.  The  conse- 
quence is  that  the  basis  of  the  action  is  hardly  contract. 
Its  real  foundation  is  an  obligation  which  the  law  im- 
poses on  the  infant  to  make  a  fair  payment  in  respect 
of  needs  satisfied.  In  other  words,  the  obligation  arises 
re  and  not  consensu.  I  do  not  mean  that  this  nicety  of 
legal  phraseology  has  been  adhered  to.  The  common  and 
convenient  phrase  is  that  an  infant  is  liable  for  goods 
sold  and  delivered,  provided  that  they  are  necessaries, 
and  there  is  no  objection  to  the  phraseology  so  long  as 
its  true  meaning  is  understood.  But  the  treatment  of 
such  actions  by  the  courts  of  common  law  has  been  in 
accordance  with  that  principle  I  have  referred  to.  That 
the  articles  were  necessaries  had  to  be  alleged  and  proved 
by  the  plaintiff  as  part  of  his  case,  and  the  sum  he  re- 
covered was  based  on  a  quantum  meruit.  If  he  claimed 
anything  beyond  this  he  failed,  and  it  did  not  help  him 
that  he  could  prove  that  the  prices  were  agreed  prices. 
All  this  is  very  ancient  law,  and  is  confirmed  by  the 
provisions  of  No.  2  of  the  sale  of  goods  act,  1893, — an 
act  which  was  intended  to  codify  the  existing  law.  That 
section  expressly  provides  that  the  consequence  of  nec- 
essaries sold  and  delivered  to  an  infant  is  that  he  must 
pay  a  reasonable  price  therefor. 

"The  sale  of  goods  act,  1893,  gives  a  statutory  defi- 
nition of  what  are  necessaries  in  a  legal  sense,  which 
entirely  removes  any  doubt,  if  any  doubt  previously 
existed,  as  to  what  that  word  in  legal  phraseology  means. 
(The  Lord  Justice  read  the  definition.)  Hence,  if  an 
action  is  brought  by  one  who  claims  to  enforce  against 
an  infant  such  an  obligation,  it  is  obvious  that  the  plain- 
tiff in  order  to  prove  his  case  must  show  that  the  goods 
supplied  come  within  this  definition.  *  *  *  That  is 
to  say,  the  plaintiff  has  to  show,  first,  that  the  goods 
were  suitable  to  the  condition  in  life  of  the  infant ;  and, 
secondly,  that  they  were  suitable  to  his  actual  require- 
ments at  the  time, — or,  in  other  words,  that  the  infant 
had  not  at  the  time   an  adequate  supply  from  other 


CAPACITY  OF  PARTIES  17 

sources.     There  is  authority  to  show  that  this  was  the 
case  even  before  the  act  of  1893.     *     *     * 

"*  *  *  the  judge  came  to  the  conclusion,  to  use 
the  language  of  the  court  in  Ryder  v.  Wombwell,  supra, 
that  there  was  no  evidence  on  which  the  jury  might  prop- 
erly find  that  these  goods  were  necessary  to  the  actual 
requirements  of  the  infant  at  the  time  of  the  sale  and 
delivery,  and  therefore,  in  accordance  with  the  duty  of 
the  judge  in  all  cases  of  trial  by  jury,  he  withdrew  the 
case  from  the  jury  and  directed  judgment  to  be  entered 
for  the  defendant.  In  my  opinion  he  was  justified  by 
the  practice  of  the  court  in  so  doing,  and  this  appeal 
must  be  dismissed." 

Question  8:  (1.)  State  the  facts  in  the  above  case,  the  spe- 
cific question  presented  and  the  court 's  decision  thereupon. 

(2.)  Suppose  that  a  minor  buys  an  overcoat,  admittedly  a 
necessary  for  him,  and  agrees  to  pay  the  sum  of  fifty  dollars 
therefor,  can  he  be  held  to  that  price  ?    Why  ? 

(3.)  Where  the  minor  purchases  an  article  that  would  be  a 
necessary  for  him  were  he  not  already  adequately  supplied,  is 
the  burden  of  proof  on  the  seller  to  show  both  that  the  article 
comes  within  the  class  of  goods  that  may  constitute  necessaries 
and  also  that  the  purchasing  minor  was  as  a  fact  not  adequately 
supplied  ? 

(Note.  Answer  to  question  8  (3).  The  above  case  holds  that 
the  burden  of  proof  is  on  the  seller  to  show  that  the  goods  were 
necessaries  to  the  minor  (taking  into  consideration  his  station 
in  life),  and  also  that  the  minor  was  not  being  supplied  from 
other  sources.  In  a  note  to  this  case  in  1  British  Ruling  Cases, 
at  page  159,  it  said:  "To  summarize,  it  may  be  said  that  while 
the  decisions  are  harmonious,  where  it  appears  that  an  infant 
lives  with  his  parents  or  is  under  the  care  of  a  guardian,  that 
one  who  seeks  to  charge  the  infant  for  articles  otherwise  con- 
ceded to  be  necessaries  must,  in  order  to  overcome  the  presump- 
tion that  he  was  properly  supplied,  show  that  such  is  not  the  case, 
there  is  a  conflict  of  opinion  whether  or  not,  where  the  infant 
does  not  live  with  his  parents,  nor  is  under  the  care  of  a  guardian, 
the  burden  is  upon  the  plaintiff  to  show  that  the  infant  was  not 
sufficiently  provided.") 


18  CONTRACTS 

Case  No.  9.  Coke  upon  Littleton,  172  (a)  "An  in- 
fant may  bind  himself  to  pay  for  his  necessary  meat, 
drink,  apparel,  necessary  physic,  and  such  other  neces- 
saries, and  likewise  for  his  good  teaching  and  instruc- 
tion whereby  he  may  profit  himself  afterward." 

Question  9:    How  did  Lord  Coke  classify  necessaries? 

Case  No.  10.     Gregory  v.  Lee,  G4  Conn.  407. 

Facts:  Lee,  a  minor  aged  19  years,  was  a  student  at 
Yale  college.  He  engaged  rooms  of  Gregory  for  the 
school  term  of  40  weeks  at  $10  per  week.  He  occupied 
the  rooms  only  about  three  months  and  then  engaged 
rooms  elsewhere.  G.  was  unable  to  rent  the  rooms  for 
the  balance  of  the  term  and  now  sues  L.  for  such  period. 

Points  Involved:  Generally,  what  are  necessaries? 
Specifically,  can  a  minor  be  held  on  an  executory  con- 
tract for  necessaries? 

Torrange,  J.:  "•  *  *  Under  the  facts  stated  it 
must  be  conceded  that  this  room,  at  the  time  the  defend- 
ant occupied  it  and  during  the  time  he  hired  it,  came 
within  the  class  called  'necessaries,'  *  *  *  for  lodg- 
ing comes  clearly  within  the  class  of  necessaries,  and 
the  room  in  question  was  a  suitable  and  proper  one. 
*  *  *  Things  necessary  are  those  without  which  an 
individual  cannot  reasonably  exist.  In  the  first  place, 
food,  raiment,  lodging  and  the  like.  About  these  there 
is  no  doubt.  So  long  then  as  the  defendant  actually 
occupied  the  room  as  his  sole  lodging  room  it  was  clearly 
a  necessary  to  him,  for  the  use  of  which  the  law  would 
compel  him  to  pay  *  *  *.  The  question  now  is 
whether  he  is  bound  to  pay  for  the  room  after  Decem- 
ber 20,  1892  (when  he  abandoned  it).  The  obligation  of 
an  infant  to  pay  for  necessaries  actually  furnished  to 
him  does  not  seem  to  arise  out  of  a  contract  in  the  legal 
sense  of  that  term,  but  out  of  a  transaction  of  a  quasi- 
contractual  nature;  for  it  may  be  imposed  on  an  infant 
too  young  to  understand  the  nature  of  a  contract  at  all. 


CAPACITY  OF  PARTIES  19 

*  *  *  And  where  an  infant  agrees  to  pay  a  stipulated 
price  for  such  necessaries,  the  party  furnishing  them 
recovers  not  necessarily  that  price,  but  only  the  fair  and 
reasonable  value  of  the  necessaries.  *  *  *  This  be- 
ing so,  no  binding  obligation  to  pay  for  necessaries  can 
arise  until  they  have  been  supplied  to  the  infant;  and 
he  cannot  make  a  binding  executory  agreement  to  pur- 
chase necessaries.  *  *  *  In  this  case  the  defendant 
gave  up  the  room  and  repudiated  the  agreement  so  far 
as  it  was  in  his  power  to  do  so,  in  the  most  positive 
and  equivocal  manner.  The  plea  of  infancy,  then,  under 
the  circumstances,  must  prevail.    *     *     *" 

Question  10:  State  the  facts  in  the  above  case,  the  specific 
question  involved  and  the  court 's  decision  thereupon. 

Case  No.  11.    Wharton  v.  McKenzie,  5  Q.  B.  606. 

Facts:  A  was  a  minor,  attending  college  away  from 
home  and  boarding  at  the  University  Commons.  He  was 
a  gentleman  of  rank  and  fortune  and  from  time  to  time 
gave  dinners  in  his  lodgings  to  his  acquaintances,  and 
for  that  purpose  obtained  on  his  credit  from  B,  a  trades- 
man, meats,  fruits  and  confectionery.  Failing  to  pay 
his  account,  B  sued  him,  and  he  pleaded  infancy. 

Point  Involved:  Are  expensive  dinners  purchased 
by  a  minor  of  rank  and  fortune  for  the  entertainment 
of  his  friends,  necessaries? 

Lord  Denman,  C.  J. :  ' '  *  *  *  For  a  young  man  in 
some  situations  in  life,  not  only  clothes  may  be  consid- 
ered necessaries,  but  a  watch  and  the  like  articles,  which 
he  is  expected  to  wear  in  that  condition  of  life ;  but  with 
respect  to  the  articles  here  supplied,  it  is  an  outrage  to 
common  sense  to  say  they  can  possibly  be  necessaries. 
It  may  perhaps  seem  harsh  and  illiberal  to  refuse  pay- 
ment for  these  things.  But  it  is  the  duty  of  tradesmen 
to  make  themselves  acquainted  with  the  circumstances 
of  the  parties  they  are  supplying.  *  *  *  Suppose  the 
son  of  the  richest  man  in  the  kingdom  to  have  been 
supplied  with  diamonds  and  race  horses,  the  judge  ought 


20  CONTRACTS 

to  tell  the  jury  that  such  articles,  cannot  be  necessaries. 
*  *  *  It  is  said  we  are  to  look  at  the  circumstances 
of  each  defendant.  True;  we  must  do  so.  But  the 
articles  supplied  must  be  necessaries,  not  mere  comforts 
or  conveniences.     *     *     *" 

Question  11:  (1.)  Suppose  A,  the  son  of  a  wealthy  society 
leader,  becomes  a  member  of  a  social  club,  are  his  dues  recover- 
able as  for  necessaries  ? 

(2.)  Suppose  he  purchases  an  automobile,  can  he  be  held  for 
the  price  ? 

(3.)  What  does  the  court  say  in  respect  to  his  purchase  of  a 
watch?  (Expensive  jewelry  not  necessary.  Ryder  v.  Wombell, 
L.  R.  4  Ex.  32.) 

Case  No.  12.     Ryan  v.  Smith,  165  Mass.  303. 

Facts:  Suit  by  Ryan,  a  minor,  to  repudiate  his  con- 
tract with  Smith  for  the  purchase  of  a  barber  shop  busi- 
ness and  the  furniture  therein,  and  to  recover  back  his 
money  paid  on  account  thereof.  Plaintiff  is  a  minor  with 
no  means  of  support  except  out  of  his  own  earnings. 

Point  Involved:  Whether  the  purchase  of  a  business  by 
a  minor  who  has  to  support  himself  out  of  his  own  earn- 
ings is  binding  upon  him? 

Knowlton,  J.:  "The  only  question  in  this  case  is 
whether  the  judge  should  have  ruled,  at  the  request  of 
the  defendant,  that  the  articles  purchased  by  the  plain- 
tiff were  necessaries.  They  were  a  barber  shop  and  chair 
and  divers  other  articles  of  furniture  designed  to  be 
used  in  furnishing  a  barber  shop.  The  plaintiff  was  a 
minor  and  he  had  no  means  of  support  except  what  he 
earned.  The  law  does  not  contemplate  that  a  minor 
shall  open  a  shop  and  become  a  trader,  or  the  proprietor 
of  a  business  which  involves  the  making  of  a  variety  of 
contracts.  This  has  long  been  settled  by  the  authorities. 
*  *  *.  It  is  clear  that  the  articles  in  question  were 
not  necessaries.  If  they  had  been  hand  tools,  to  a  reason- 
able amount,  such  as  are  ordinarily  provided  by  a  jour- 
neyman and  necessary  for  use  in  his  trade  or  business, 
the  case  would  be  different.' ' 


CAPACITY  OF  PARTIES  21 

Question  12:  (1.)  State  the  facts,  the  question  presented 
and  the  court's  decision  in  the  above  case. 

(2.)  What  sort  of  trade  tools  would  be  regarded  as  neces- 
saries under  certain  conditions? 

Sec.  9.    Minor's  Liability  in  Tort  in  Cases  Connected 
with  Contracts. 

Case  No.  13.    Fitts  v.  Hall,  9  N.  H.  441. 

Facts:  Plaintiff,  having  a  large  quantity  of  hats  for 
sale,  sold  them  to  defendant,  first  inquiring  of  defend- 
ant if  he  were  of  age  and  being  informed  that  he  was. 
Plaintiff  sued  defendant  for  the  price  and  defendant  set 
up  and  proved  he  was  a  minor.  Plaintiff  now  brings 
suit  for  damages  sustained  by  reason  of  the  deceit  and 
fraud  practiced  upon  him  by  defendant. 

Point  Involved:  Is  a  minor  who  procures  benefits 
through  false  misrepresentation  as  to  his  age,  under  a 
contract  voidable  by  him,  answerable  in  damages  for  the 
deceit? 

Parker,  C.  J. :  "  The  general  principle  *  *  *  is 
that  an  infant  is  liable  in  actions  ex  delicto  [in  tort] 
*  *  *.  But  a  matter  of  contract  *  *  *  is  not*  to 
be  turned  into  a  tort  in  order  to  charge  the  infant  by 
change  of  the  form  of  action.     *     *     * 

"But  if  the  tort  is  subsequent  to  the  contract  and  not 
a  mere  breach  of  it,  but  a  distinct,  wilful  and  positive 
wrong  of  itself,  then,  although  it  may  be  connected  with 
a  contract,  the  infant  is  liable. 

<  i  *  *  *  jf  inf anCy  is  not  permitted  to  protect  fraud- 
ulent acts,  and  infants  are  liable  ex  delicto,  *  *  * 
there  is  no  sound  reason  that  occurs  to  us  wThy  an  infant 
should  not  be  liable  in  damages  for  a  fraudulent  repre- 
sentation whereby  another  has  received  damage.  *  *  * 
The  representation  *  *  *  was  not  part  of  the  con- 
tract. *  *  *  No  contract  was  made  about  defend- 
ant's age.    *     *     *" 

Question  13:  (1.)  State  the  facts  in  the  above  case,  the 
specific  question  involved  and  the  court's  decision. 


22  CONTRACTS 

(2.)  A  sells  goods  to  B,  a  minor,  who  is  20  years  of  age,  but 
looks  to  be  25.  Nothing  is  said  about  B's  age.  Is  B  guilty  of 
fraud  in  not  disclosing  his  age  ? 

(Note  to  Case  12.  There  are  some  authorities  that  hold  a  con- 
trary view  to  the  above  decision.  Thus,  the  minor  is  not  held  in 
the  English  cases:  Johnson  v.  Pye,  1  Keble,  913.  Also,  see 
Slayton  v.  Barry,  175  Mass.  513.  ' '  an  unfortunate  reversion  to 
the  old  rule."— Note  in  57  L.  R.  A.,  p.  678.  See  the  cases  col- 
lected in  that  note,  beginning  page  675.) 

Case  No.  14.    Towne  v.  Wiley,  23  Vt.  355. 

Facts:   The  facts  are  given  in  the  opinion. 

Point  Involved:  Is  a  minor  liable  for  wilful  injury  to 
the  property  of  another,  procured  by  him  under  his  void- 
able contract  with  that  other  ? 

Redfield,  J. :  ' '  This  is  an  action  on  the  case,  in  trover, 
for  the  conversion  of  a  certain  horse.  The  facts  which 
appeared  on  the  trial  were  that  the  defendant,  being  an 
infant  of  twenty  years,  hired  of  the  plaintiffs,  who  were 
livery  stable  keepers  at  Bellows  Falls,  the  horse  in  ques- 
tion, to  go  to  Brattleboro'  and  back  the  same  day.  He 
went  to  Brattleboro '  and  returned  by  a  circuitous  route, 
nearly  doubling  the  distance,  which,  in  a  direct  course,  is 
twenty- three  miles,  at  about  eight  o'clock  in  the  evening 
went  to  a  house  in  Westminster,  and  remained  until 
four  o'clock  the  next  morning,  the  night  being  cold  and 
windy,  and  the  horse  exposed,  during  the  whole  night, 
without  shelter  or  covering  of  any  kind.  This  was  on 
the  thirteenth  of  July,  and  the  horse,  when  returned  to 
the  plaintiffs,  the  next  morning,  was  sick,  ate  nothing, 
and  died  in  five  or  six  days,  from  the  over  driving  and 
exposure.  The  court  charged  the  jury,  that  these  facts 
constituted  a  conversion  by  the  defendant,  and  that  his 
infancy  was  no  bar  to  the  action,  and  that  the  plaintiffs 
were  entitled  to  recover  the  value  of  the  horse,  at  the 
time  of  the  conversion,  which  would  be  when  the  defend- 
ant departed  from  the  use  for  which  he  hired  the  beast. 

1 '  The  cases  upon  the  subject  of  the  liability  of  infants, 


CAPACITY  OF  PARTIES  23 

for  torts,  when  viewed  with  reference  to  their  facts,  may 
not  seem  altogether  consistent;  but  when  the  principle, 
upon  which  the  courts  profess  to  proceed,  is  examined, 
they  will  all  be  found  to  be  placed  upon  the  same  ground ; 
and  no  case  is  to  be  regarded  as  authority,  except  for 
the  principle,  upon  which  the  courts  professed  to  pro- 
ceed in  deciding  it.  In  all  the  cases,  then,  upon  this 
subject,  it  will  be  found  that  the  courts  profess  to  hold 
infants  liable  for  positive  substantial  torts,  not  for  viola- 
tions of  contract  merely,  although,  by  construction,  the 
party  claiming  redress  may  be  allowed,  by  the  general 
rules  of  pleading,  to  declare  in  tort,  or  contract,  at  his 
election.  Jennings  v.  Rundall,  8  T.  R.  335,  was  entirely 
of  this  character.  The  form  of  the  action  was  trespass 
on  the  case,  for  immoderately  driving  a  mare,  let  to  hire 
by  the  plaintiff  to  the  defendant,  and  trover  for  conver- 
sion. The  defendant  pleaded  infancy  to  the  counts  for 
immoderately  driving,  and  the  plaintiff  demurred,  and 
Lord  Kenyon,  in  giving  judgment,  speaks  of  the  de- 
fendant as  a  lad.  But  in  every  view  of  the  case,  the  de- 
fendant was  guilty  of  a  mere  omission,  a  nonfeasance, 
or  breach  of  the  implied  contract,  to  use  the  beast  dis- 
creetly and  carefully,  and  he  had  judgment. 

"Applying  these  general  principles  to  the  case  before 
us,  it  seems  to  us  that  the  distinction  taken  in  the  court 
below  is  the  true  one.  So  long  as  the  defendant  kept 
within  the  terms  of  the  bailment,  his  infancy  was  a  pro- 
tection to  him,  whether  he  neglected  to  take  proper  care 
of  the  horse,  or  to  drive  him  moderately.  But  when  he 
departs  from  the  object  of  the  bailment,  it  amounts  to  a 
conversion  of  the  property,  and  he  is  liable  as  much  as  if 
he  had  taken  the  horse  in  the  first  instance  without  per- 
mission. And  this  is  no  hardship ;  for  the  infant  as  well 
knows  that  he  is  perpetrating  a  positive  and  substantial 
wrong  when  he  hires  a  horse  for  one  purpose  and  puts 
him  to  another,  as  he  does  when  he  takes  another's  prop- 
erty by  way  of  trespass." 


24  CONTRACTS 

Question  14:  (1.)  State  the  facts  in  the  above  case,  the 
specific  question  presented  and  the  court's  decision. 

(2.)  A  minor  hires  a  horse  to  drive  from  Chicago  to  Evans- 
ton,  but  drives  it  from  Chicago  to  Wheaton  (another  direction) 
and  injures  it  on  the  way.    Can  the  owner  recover  damages  ? 

(3.)  A,  a  minor,  hires  a  horse  to  drive  from  Chicago  to 
Evanston,  and  drives  it  immoderately.  Can  the  owner  recover 
damages  ? 

(4.)  A,  a  minor,  made  a  contract  with  B,  an  adult,  that  he 
would  thresh  his  grain  for  him.  A  was  negligent  in  the  per- 
formance of  his  contract  and  the  grain  was  thereby  destroyed 
by  fire.  Is  A  liable  to  B?  (Lowery  v.  Cate  [Term.]  57  L.  R, 
A.  673.) 

C.    Capacity  of  Other  Parties  Under  Disability. 

§  10.  Insane  parties.  §  12.  Aliens. 

§  11.  Married  women.  §  13.  Corporations. 

Sec.  10.    Insane  Persons. 

Case  No.  15.    Ronan  v.  Bluhm,  173  111.  277. 

Facts:  Thomas  Ronan,  was  the  owner  of  Lot  10,  etc., 
in  Chicago.  On  April  25,  1882,  Ronan  conveyed  this 
property  to  one  Thomas  Carbine.  Carbine  did  not  go 
into  possession  of  said  property,  but  on  the  day  following 
conveyed  it  to  his  daughter.  Two  days  thereafter,  Mary 
Ronan,  daughter  of  Thomas  Ronan,  filed  a  petition  in 
the  County  Court  alleging  that  Thomas  Ronan  was  and 
had  been  for  over  two  years  a  confirmed  drunkard  and 
of  unsound  mind  and  asking  for  the  appointment  of  a 
conservatrix ;  and  she  was  appointed.  A  few  days  there- 
after she,  as  such  conservatrix,  filed  suit,  asking  that  her 
father's  conveyance  to  Carbine  and  Carbine's  convey- 
ance to  his  daughter  be  set  aside,  the  deed  to  the  daughter 
being  colorable  and  without  consideration.  The  bill  did 
not  offer  to  return  the  consideration  received  by  Thomas 
Ronan. 

Point  Involved:  Is  a  deed  by  an  insane  person  who 
has  not  legally  been  declared  insane  at  the  time  the  deed 
was  given,  binding,  void  or  voidable? 


CAPACITY  OF  PARTIES  25 

Me.  Justice  Boggs  delivered  the  opinion  of  the  Court : 
"*  *  *  The  doctrine  that  a  contract  may  not  be 
rescinded  by  the  court  except  the  party  in  whose  interest 
the  rescission  is  awarded  shall  restore  that  which  was 
received  by  the  virtue  of  the  contract,  is  applicable,  in 
general,  only  to  contracts  made  by  persons  compos  mentis 
and  under  no  disability.  Whether  it  is  applicable,  or,  if 
applicable,  to  what  extent  it  should  be  modified  to  meet 
particular  cases  where  persons  non  compos  have  received 
money  or  property  as  the  consideration  for  an  agreement, 
has  been  much  discussed  by  text  writers  and  is  the  sub- 
ject of  many,  not  altogether  harmonious,  judicial  decis- 
ions. The  rule  which  seems  to  commend  itself  to  our 
sense  of  justice,  and  which  is  supported  by  what  we 
conceive  to  be  the  weight  of  authority,  is  that  a  completed 
contract  of  sale  of  lands  by  a  grantor  who  is  insane  but 
has  not  been  judicially  declared  insane,  for  a  fair  consid- 
eration in  money  or  property,  to  a  grantee  who  entered 
into  the  contract  without  fraudulent  intent  and  without 
knowledge  or  notice  of  the  disability  of  the  grantor,  will 
not  be  set  aside  in  favor  of  the  grantor  or  his  represent- 
atives unless  the  purchase  price  be  returned  or  the  prop- 
erty parted  with  by  the  grantee  be  restored.  ( Scanlan  v. 
Cobb,  85  111.  296 ;  Boswell  on  Insanity,  sees.  413,  414.)  If 
the  grantee,  with  notice  of  the  incapacity  of  the  insane 
grantor  to  manage  his  estate,  invests  such  grantor  with 
the  possession  of  money  or  property  in  exchange  for 
lands,  and  the  said  money  or  property,  by  reason  of  the 
mental  incapacity  of  the  grantor,  is  wasted  and  lost,  or 
if  the  grantee,  with  such  knowledge,  obtains  a  convey- 
ance of  the  lands  from  such  a  grantor  for  a  consideration 
so  inadequate  as  to  be  inequitable  and  to  evince  that  it 
was  his  intention  to  take  advantage  of  the  infirmity  of 
the  grantor  and  to  defraud  him,  such  a  grantee  would 
have  no  standing  to  invoke  the  equitable  rule  that  'he 
who  asks  equity  must  do  equity, '  and  demand  that  under 
the  operation  of  that  maxim  a  court  of  equity  should 
refuse  to  set  aside  the  conveyance  except  upon  the  im- 
position of  such  terms  as  would  amply  protect  him  from 


26  CONTRACTS 

any  loss.  Such  a  rule  would  be  but  to  guarantee  that, 
although  the  attempt  to  fraudulently  procure  the  prop- 
erty of  an  insane  man  might  fail,  yet  the  perpetrator  of 
the  fraud  would  be  protected  by  law  from  any  loss  in  the 
transaction. ' ' 

Question  15:    (1.)     Has  an  insane  person  the  right  to  avoid 
his  contract?    Must  he  restore  the  consideration? 
I      (Note:     See  also,  Blinn  v.  Schwartz,  p.  275.) 

Sec.  11.    Married  Women. 

Case  No.  16.     Snell  v.  Snell,  123  111.  403. 

Facts:  Ellen  J.  Snell,  wife  of  Philip  Snell,  joined  with 
him  in  a  deed  of  mortgage  to  Jane  Snell,  to  waive  and  re- 
lease her  right  of  homestead  and  dower.  The  mortgage 
misdescribed  the  land.  Later  the  mortgagee,  Jane  Snell, 
filed  a  bill  to  correct  and  foreclose  the  mortgage.  The 
present  suit  is  by  Ellen  J.  Snell  as  widow  of  Philip  Snell, 
and  her  two  minor  children,  for  assignment  of  homestead, 
claiming  that  no  interest  therein  passed  by  the  deed  of 
mortgage. 

Point  Involved:  Generally,  what  was  the  effect  of  a 
married  woman's  contract  at  common  law?  by  the  stat- 
utes of  Illinois? 

Mrs.  Justice  Mulkey:  "*  *  *  Coming  now  to  the 
merits  of  the  case,  it  may  somewhat  aid  us  to  advert 
hastily,  and  in  a  general  way,  to  the  legal  disabilities  of 
married  women,  as  they  existed  here  and  in  England  be- 
fore the  commencement  of  the  reform  legislation  which 
has  resulted  in  so  radical  a  change  in  the  present  law  on 
the  subject.  Their  contracts,  by  the  common  law,  as  it 
existed  in  England,  and  in  this  State  prior  to  the  com- 
paratively recent  legislation  on  the  subject,  commencing 
in  1861,  were  absolutely  void  at  law,  and  were  equally  so 
in  equity,  so  far  as  imposing  any  personal  obligation  is 
concerned.  They  might,  however,  by  such  contracts,  sub- 
ject to  certain  limitations,  bind  their  separate  estate, 
but  they  imposed  no  personal  obligation  whatever.  The 
right  of  a  married  woman  to  have  a  separate  estate  in 


CAPACITY  OF  PARTIES  27 

personal  property  was  purely  a  creature  of  equity,  and 
the  power  to  bind  it  (the  estate,  not  herself),  by  a  con- 
tract fairly  entered  into  in  respect  to  the  estate,  and  on 
her  own  account,  was  regarded  as  a  mere  incident  of 
such  ownership.  As  her  contract  imposed  on  her  no 
personal  obligation,  either  at  law  or  in  equity,  it  there- 
fore followed,  as  a  logical  result  and  legal  sequence,  that 
a  bill  would  not  lie  to  reform  a  contract  or  conveyance 
alleged  to  have  been  made  by  a  married  woman.  As 
a  conveyance  of  land  by  deed  was  a  species  of  contract, 
it  followed  that  an  instrument  executed  by  a  married 
woman,  purporting  to  convey  real  property,  was  abso- 
lutely void,  both  at  law  and  in  equity,  and  consequently 
could  not  be  enforced  or  reformed.  While  at  common 
law  a  married  woman  could  not  convey  her  own  real 
estate,  or  release  her  inchoate  right  of  dower  or  other 
interest  in  the  lands  of  her  husband,  yet  she  might, 
through  the  instrumentality  of  a  fictitious  suit,  called  a 
fine  or  fine  and  recovery,  permit  another  to  recover 
whatever  right  she  had  in  the  land  proposed  to  be  con- 
veyed, and  thus,  by  a  species  of  estoppel,  bar  her  rights. 
At  common  law  this  was  the  only  mode  by  which  a  mar- 
ried woman  could  dispose  of  her  own  lands,  or  any  in- 
terest she  might  have  in  those  of  her  husband.  This 
cumbrous  and  expensive  mode  of  conveying  her  inter- 
ests in  real  property  was  abolished  by  an  act  of  the 
British  Parliament  (3  and  4  William  IV,  chap.  74), 
under  the  provisions  of  which  the  wife  was  enabled  to 
accomplish  the  same  ends  as  she  has  been  able  to  do  here 
from  a  very  early  period,  by  joining  her  husband  in  an 
ordinary  deed  of  conveyance,  subject  to  certain  pie- 
scribed  formalities,  which,  in  all  cases,  had  to  be  strictly 
complied  with.  But  these  statutory  enactments,  which  en- 
abled a  married  woman  to  make  a  valid  transfer  or  con- 
veyance of  real  property,  did  not  at  all  affect  her  dis- 
abilities in  other  respects.  As  to  her,  the  deed  only 
operated  as  a  conveyance;  therefore,  all  covenants  con- 
tained in  it  were,  in  law,  the  covenants  of  the  husband 
only.    It  followed,  that  if  her  deed  was  not  sufficient,  on 


28  CONTRACTS 

its  face,  to  pass  her  property,  there  was  no  relief  but  to 
induce  her  to  make  another ;  and  if  she  declined  to  do  so, 
equity  would  not  compel  her,  nor  would  it  reform  the 
instrument,  for  such  a  suit  could  not,  in  any  case,  be 
maintained  for  either  purpose,  except  upon  the  theory 
that  a  contract  for  a  deed  had  existed  between  the  par- 
ties. This,  of  course,  could  not  be  done  in  the  case  of 
a  married  woman,  for  the  simple  reason  she  could  not 
make  such  a  contract,  nor,  indeed,  any  at  all ;  and  of  this 
the  court  would  take  judicial  notice.     *     *     * 

The  law,  however,  in  respect  to  the  right  and  dis- 
abilities of  married  women,  has  of  late  years  undergone 
a  radical  change.  By  the  acts  of  1861,  1869  and  1874, 
married  women  are  to-day,  and  were  at  the  time  of  the 
execution  of  the  mortgages  in  question,  placed  upon  a 
common  footing  with  married  men  in  respect  to  all  prop- 
erty rights,  including  the  means  to  acquire,  protect  and 
dispose  of  the  same.  They  may  own,  buy,  sell,  transfer 
and  convey  any  and  all  kinds  of  property,  to  the  same 
extent  as  married  men  or  single  women  may,  and  sub- 
ject to  no  other  or  different  conditions  or  restrictions. 
Not  only  so,  but  their  duties  and  obligations  in  respect 
to  these  rights  and  powers  are  the  same  as  those  of 
others  sui  juris.  Like  other  persons,  they  must  perform 
their  contracts ;  and  if  they  fail  to  do  so,  they  are  amen- 
able to  legal  process  to  the  same  extent  as  if  they  were 
unmarried.  If,  in  the  execution  of  a  deed  by  a  married 
woman  a  mistake  occurs,  so  that  it  does  not  truly  state 
the  contract  between  the  parties,  a  court  of  equity  will 
correct  it  against  her,  just  as  readily  as  it  would  against 
any  other  person.     *     *     *" 

Question  16:  What  was  the  power  of  a  married  woman  to 
contract  at  common  law  ?  in  modern  law  ? 

Sec.  12.    Aliens. 

(Note :  Alien  friends  may  freely  contract  with  the  citizens  of 
our  country,  and  acquire  personal  property.  Their  power  to 
hold  real  estate  in  this  country  depends  on  the  state  laws.  At 
common  law  they  could  hold  no  such  estate. 


CAPACITY  OP  PARTIES  29 

An  alien  enemy  cannot  make  a  commercial  contract  and  all 
such  as  exist  when  hostilities  are  declared,  are  dissolved.) 

Sec.  13.    Corporations,  Partnerships,  Agents,  Etc. 

(Note:    See  under  appropriate  Divisions,  post.) 


CHAPTER   THREE 
OFFER  AND  ACCEPTANCE 

A.  What,  in  form,  constitutes  offer  form  constituting  an  offer  and 

and  acceptance.  acceptance. 

B.  The    validity    of    the    assent    in 

A.    What,  in  Form,  Constitutes  an  Offer  and  Acceptance. 

(a)  Offer  and  acceptance  necessary       (b)  What    constitutes    offer;     and 
to  contract.  the  term  thereof. 

(c)  What  constitutes  acceptance. 

(a)    Offer  and  Acceptance  Necessary  to  Contract. 

Sec.  14.    No  Contract  in  Fact  Without  Offer  and 
Acceptance. 

Case  No.  17.    Bartholomew  v.  Jackson,  20  Johns.,  28. 

Facts:  J  owned  a  stubblefield  in  which  B  had  a  stack 
of  wheat.  J  sent  word  to  B  to  remove  the  wheat,  as  he 
wished  to  burn  the  stubble.  B  was  not  at  home,  but  B  's 
sons  stated  that  the  wheat  would  be  removed  by  10 
o  'clock  the  next  morning.  J  waited  until  that  time,  and, 
expecting  B  to  appear  and  remove  the  wheat,  set  fire  to 
a  remote  part  of  the  field.  The  fire  spread  rapidly  and 
threatened  the  wheat,  whereupon  J  to  save  it,  removed 
it.  He  then  sued  for  his  labor  and  had  judgment,  but  B 
appealed  to  the  present  court. 

Point  Involved:  If  one  person  does  work  for  another 
without  the  knowledge  or  consent  of  that  other,  is  there 
a  contract! 

30 


OFFER  AND  ACCEPTANCE  31 

Pratt,  J. :  ' '  *  *  *  The  plaintiff  performed  the  serv- 
ice with  out  privity  or  request  of  the  defendant,  and 
there  was  in  fact  no  promise,  expressed  or  implied.  If 
a  man  humanely  bestows  his  labor,  and  even  risks  his 
life  in  voluntarily  aiding  to  preserve  his  neighbor's 
house  from  destruction  by  fire,  the  law  considers  the 
service  rendered  as  gratuitous  and  it  therefore  forms  no 
ground  of  action.    The  judgment  must  be  reversed. ' ' 

Question  17:  State  the  facts  in  the  above  case,  the  question 
involved  and  the  court's  decision. 

Case  No.  18.    Broadax  v.  Ledbetter,  100  Texas,  375. 

Facts:  Plaintiff  sued  upon  a  claim  for  a  reward  of- 
fered by  defendant,  alleging  that  defendant  was  a  sheriff 
and  as  such  had  in  his  custody  one  Vann,  convicted  of 
murder  and  condemned  to  death ;  that  Vann,  pending  his 
appeal  to  the  higher  Court,  had  broken  jail  and  escaped. 
That  defendant  offered  a  public  reward  for  his  recap- 
ture; that  the  plaintiff  made  the  recapture  and  thus 
earned  the  reward.  Defendant  objected  that  plaintiff 
did  not  state  that  he  had  knowledge  of  the  offer  of  re- 
ward when  he  made  the  capture.  The  court  gave  plain- 
tiff leave  to  amend,  but  the  plaintiff  declined  to  do  so 
and  appealed,  standing  upon  the  sufficiency  of  his  claim 
without  such  averment. 

Point  Involved:  If  an  offer  is  made,  and  the  person 
to  whom  such  offer  was  addressed,  without  knowledge 
of  the  offer,  does  the  thing  called  for  by  the  offer,  is 
there  a  contract? 

Williams,  J. :  ' '  *  *  *  The  liability  for  a  reward  of 
this  kind  must  be  created,  if  at  all,  by  contract.  There 
is  no  rule  of  law  which  imposes  it  except  that  which  en- 
forces contracts  voluntarily  entered  into.  A  mere  offer 
or  promise  to  pay  does  not  give  rise  to  a  contract.  That 
requires  the  assent  or  the  meeting  of  two  minds,  and 
therefore  is  not  complete  until  the  offer  is  accepted. 
Such  an  offer  as  that  alleged  may  be  accepted  by  any- 
one who  performs  the  service  called  for  when  the  ac- 


32  CONTRACTS 

ceptor  knows  that  it  has  been  made  and  acts  in  per- 
formance of  it,  but  not  otherwise.  He  may  do  such 
things  as  are  specified  in  the  offer,  but,  in  so  doing,  does 
not  act  in  performance  of  it,  and  therefore  does  not  ac- 
cept it,  when  he  is  ignorant  of  its  having  been  made. 
There  is  no  such  mutual  agreement  of  minds  as  is  essen- 
tial to  a  contract.  The  offer  is  made  to  any  one  who  will 
accept  it  by  performing  the  specified  acts,  and  it  only 
becomes  binding  when  another  mind  has  embraced  and 
accepted  it.  The  mere  doing  of  the  specified  things 
without  reference  to  the  offer  is  not  the  consideration 
for  which  it  calls.  This  is  the  theory  of  the  authorities 
which  we  regard  as  sound.     *     *     *" 

Question  18:  (1.)  State  the  facts  in  the  above  case,  the 
^question  presented  and  the  court's  decision. 

(2.)  A  and  B  discuss  the  sale  of  a  horse  from  A  to  B.  No 
bargain  is  struck.  A  then  leaves  town  and  from  a  distance  mails 
B  a  letter  offering  the  horse  for  sale  for  $100.  Before  B  gets 
this  letter  he  writes  A  he  will  buy  the  horse  on  the  identical 
terms  that  are  proposed  in  A's  letter,  though  he  does  not  yet 
know  that  letter  has  been  written.  The  two  letters  cross  in  the 
mails.    Is  there  a  contract  ?    Why  ? 

(b)    What  Constitutes  Offer;  and  the  Term  Thereof. 

§  15.  Intention  to  make  offer.  §  19.  Notice    of    withdrawal    neces- 

§  16.  Certainty  of  offer.  sary. 

§  17.  Lapse   of   offer  by   expiration  §  20.  Rejection  of  offer  as  terminat- 

of  time.  ing  it. 

§  18.  Withdrawal  of  offer  before  ac-  §  21.  Lapse  of  offer  by  death  or  in- 

ceptance.  sanity  of  the  offeror. 

Sec.  15.    Propositions  Not  Intended  as  Offers. 

Case  No.  19.    Keller  v.  Holderman,  11  Mich.  248. 

Facts:  Plaintiff  sued  on  a  check  for  $300.00.  The 
defendant  had,  in  a  spirit  of  jest,  given  the  check  for  an 
old  watch  worth  $15,  and  both  parties  knew  the  entire 
transaction  was  a  joke,  and  that  no  sale  was  intended. 

^  Martin,  C.  J.:  "When  the  Court  below  found  as  a 
fact  'that  the  whole  transaction  between  the  parties  was 
a  frolic  and  a  banter,  the  plaintiff  not  expecting  to  sell 


OFFER  AND  ACCEPTANCE  33 

nor  the  defendant  intending  to  buy  the  watch,  at  the 
sum  for  which  the  check  was  drawn,'  the  conclusion 
should  have  been  that  no  contract  was  ever  made  by  the 
parties.     *     *     *" 

Question  19:  (1.)  Suppose  the  promisee  had  not  known  that 
the  promisor  was  joking.  Could  the  promise  be  enforced  ?  Plate 
v.  Durst,  42  W.  Va.  63. 

Case  No.  19a.  Anderson  v.  Wisconsin  Rwy.  (Remarks 
of  Elliot,  J.,  p.  518,  post.) 

Question  19a:  (1.)  A  merchant  advertizes  a  bargain  sale 
at  a  certain  time  quoting  articles  and  prices.  B,  at  some  expense, 
attends.  The  sale  is  not  held.  B  demands  certain  of  the  articles 
at  the  prices  quoted.  Is  there  a  contract  ?  Has  B  any  action  for 
damages  ? 

(2.)  A,  a  salt  dealer,  sends  to  all  his  old  customers  a  printed 
circular  letter  "offering"  a  certain  grade  of  salt  at  certain  prices 
and  requesting  orders.  B,  in  response,  orders  a  reasonable 
quantity.     Can  B  hold  A  on  the  order?    Why? 

Sec.  16.    The  Proposition  to  Constitute  an  Offer  Must 
Be  of  Reasonable  Certainty. 

Case  No.  20.  Sherman  v.  Kitsmiller,  Adm'r.,  17  S.  & 
R.  (Pa.)  45. 

Facts:  Elizabeth  Sherman,  nee  Koons,  lived  as  house- 
keeper for  the  deceased  until  her  marriage,  upon  his 
promise  to  convey  her  100  acres  of  land  for  her  services. 
No  particular  100  acres  were  stated.  This  is  a  suit 
against  the  administrator  for  the  enforcement  of  the 
alleged  contract. 

Duncan,  Justice:  "*  *  *  Express  promises  *  *  * 
ought  to  be  explicit,  to  a  common  intent  at  least.    *    *    * 

"*  *  *  In  the  present  case  *  *  *  the  prom- 
isor himself  would  not  know  what  to  convey,  nor  the 
promisee  what  to  demand.  If  it  had  been  a  promise  to 
give  her  100  pieces  of  silver,  this  would  be  too  vague 
*     * ;   for   what  pieces  ?     *     *     * — what   denomina- 


34  CONTRACTS 

lion?  One  hundred  cows  would  be  sufficiently  certain, 
because  the  intention  would  be  that  they  should  be  of 
middling  quality ;  but  100  acres  of  land,  without  locality, 
without  estimation  of  value,  without  relation  to  anything 
that  could  render  it  certain,  does  appear  to  me  to  be  the 
most  vague  of  all  promises ;  and  if  any  contract  can  be 
void  for  its  uncertainty  this  must  be.  One  hundred 
acres  on  the  Rocky  Mountains,  or  in  the  Conestoga  manor 
— 100  acres  in  the  mountain  of  Hanover  County,  Vir- 
ginia, or  in  the  Conewango  rich  lands  of  Adams  county — 
100  acres  of  George  Sherman's  mansion  place  at  $80  per 
acre,  or  100  acres  of  his  barren  lands  at  $5 ! 

"This  vague  and  void  promise,  incapable  of  specific 
execution  *  *  *  would  not  prevent  the  plaintiff 
from  recovering  ,*  *  *  for  the  value  of  the  woman's 
services  until  her  marriage,"  (i.  e.,  though  the  offer  of 
100  acres  of  land  was  too  uncertain  for  its  acceptance 
to  constitute  a  contract,  yet  for  services  actually  per- 
formed, she  could  recover  a  reasonable  compensation 
as  on  an  implied  offer  and  acceptance. — Ed.) 

Decision  of  the  Court :  For  defendant,  on  the  express 
contract  as  too  indefinite ;  for  the  plaintiff  on  an  implied 
contract  for  services  rendered. 

Question  20:  (1.)  State  the  facts  in  the  above  case,  the 
question  presented  and  what  the  court  held. 

(2.)  "What  did  the  court  say  in  reference  to  a  promise  to 
give  100  cows  for  the  services  of  complainant?  Why  any  dis- 
tinction in  such  a  case  ? 

(3.)  Was  the  claimant  allowed  to  recover  anything  for  her 
services  ?    On  what  theory  ? 

Sec.  17.    Lapse  by  Expiration  of  Time. 

Case  No.  21.    Maclay  v.  Harvey,  90  111.  525. 

Facts:  John  Harvey,  defendant,  owner  of  a  millinery 
store  in  Monmouth,  on  March  21,  1876,  wrote  plaintiff, 
a  milliner  in  Peoria,  Illinois,  offering  her  a  position  in 
his  shop  at  $15  per  week  during  the  season,  which  was 


OFFEU  AND  ACCEPTANCE  35 

to  begin  about  the  5th  to  the  10th  of  April  and  to  end 
about  July  1st.    He  ended  by  saying: 

"  You  will  confer  a  favor  by  giving  me  your  answer  by 
return  mail."  Plaintiff  on  March  23rd  answered  this 
letter  accepting  position,  and  gave  the  answer  to  a  boy 
to  post.  The  postmark  showed  it  was  not  put  in  the  post- 
office  until  March  25th.  Defendant  not  receiving  plain- 
tiff's answer  by  return  mail  or  several  mails  thereafter, 
made  other  arrangements.  Plaintiff  sued  for  breach  of 
contract. 

Point  Involved:  If  acceptance  to  an  offer  is  requested 
within  a  certain  time,  does  this  limit  the  life  of  the  offer  ? 

Schofield,  J. :  "*  *  *  If  a  contract  was  consum- 
mated between  the  parties,  it  was  by  the  mailing  of  ap- 
pellant's (plaintiff's)  postal  card  on  the  25th  of  March. 

*  *  *  It  is  clear  here  that  the  nature  of  the  business 
demanded  a  prompt  answer,  and  the  words,  'You  will 
confer  a  favor  by  giving  me  your  answer  by  return  mail, ' 
do  in  effect  stipulate  for  answer  by  return  mail.  *  *  * 
There  were  two  daily  mails  between  Peoria  and  Mon- 
mouth. *  *  *  an(j  it  did  not  require  more  than  one 
day's  time  between  the  points.  Appellee's  (defendant's) 
letter  *  *  *  bears  date  March  21st.  *  *  *  (Plain- 
tiff) received  appellee's  letter  on  the  evening  of  the 
22nd.  Appellee  was,  therefore,  entitled  to  expect  a  reply 
mailed  on  the  23rd,  which  he  ought  to  have  received  on 
that  day,  or  at  the  farthest,  on  the  morning  of  the  24th, 
but  appellant's  reply  was  not  mailed  until  the  25th.  It 
does  not  relieve  appellant  of  fault  that  she  gave  the  postal 
card  to  a  boy  on  the  23rd  to  have  him  mail  it.  *  *  * 
The  boy  was  her  agent,     *     *     *     and  his  negligence 

*  *     *    was  her  negligence.     *     *     *" 

Question  21:  State  the  facts  in  the  above  case,  the  question 
presented  and  the  court's  decision. 

Case  No.  22.    Hagardine  Co.  v.  Reynolds,  64  Fed.  560. 
Facts:  Defendant,  at  New  York,  offered  to  sell  plain- 
tiff, at  St.  Louis,  a  certain  quantity  of  cotton  warp.    The 


36  CONTRACTS 

offer  reached  plaintiff  September  28, 1892,  and  the  letter 
of  acceptance  was  mailed  by  it  October  4,  1892.  No  time 
was  stated  in  which  the  acceptance  must  be  made.  A  con- 
siderable correspondence  had  been  carried  on  by  the 
parties,  letters  always  being  answered  by  both  parties 
within  three  days.  Defendant  claims  that  the  offer  had 
expired  because  a  reasonable  time  had  elapsed,  under  the 
circumstances,  before  plaintiff  attempted  to  accept  the 
offer. 

Point  Involved:  If  the  life  of  the  offer  is  not  expressly 
limited,  what  elements  enter  to  determine  its  length  of 
continuance  ? 

Priest,  District  Judge  :  "  *  *  *  The  defendants  in- 
sist more  strongly  that  the  acceptance  was  not  within  a 
reasonable  time,  and  I  am  of  opinion  that  this  defense  is 
well  taken.  Up  to  this  time  the  correspondence  had  been 
prompt.  Both  parties  had  been  ready  with  and  made 
replies  upon  receipt  of  each  other 's  letters.  Never  more 
than  three  days  had  intervened  between  the  mailing  of  a 
letter  and  the  posting  of  its  reply.  The  defendants  had 
the  right,  therefore,  to  presume,  *  *  *  from  the  un- 
usual delay,  that  the  plaintiff  concluded  to  negative  their 
offer.  They  would  not  have  been  justified  in  holding 
goods  then  ripe  for  an  opening  market  to  await  the  un- 
certain action  of  the  plaintiff  beyond  that  time  usually 
and  reasonably  necessary  for  the  formation  and  trans- 
mission of  a  rejoinder.  *  *  *  What  is  a  reasonable 
time  must  be  determined  by  circumstances  and  situation 
of  both  parties.  The  defendants  were  not  concerned  with, 
nor  could  they  know  of,  Mr.  McKittrick's  absence  from 
business.  *  *  *  There  are  cases  and  circumstances 
in  which  the  question  of  '  reasonable  time '  is  one  for  the 
determination  of  a  jury  but  this,  in  my  opinion,  is  not  one 
of  them.     *     *     *" 

(See  also  case  24.) 

Question  22:  (1.)  What  were  the  facts  in  the  above  case, 
the  question  presented  and  the  court's  decision? 

(2.)  On  Saturday  afternoon,  P  offered  D  by  telegram  a  large 
quantity  of  oil  at  58c.    The  telegram  reached  D  Monday  morn- 


OFFER  AND  ACCEPTANCE  37 

ing,  between  8  and  9  o'clock  A.  M.  On  Tuesday  about  9  A.  M. 
D  deposited  a  telegram  purporting  to  accept  the  offer,  which 
reached  P  in  due  time.  The  market  on  oil  was  very  unsettled, 
and  the  price  had  for  a  month  previous  been  subject  to  great 
and  sudden  fluctuations,  ranging  from  55c  to  75c  per  gallon. 
P  refuses  to  fill  the  order  and  promptly  notifies  D  to  this  effect. 
Can  D  hold  P?  (Minnesota  Oil  Co.  v.  Collier  &  Co.,  4  Dillon 
(U.  S.  Circuit  Court)  431.) 

Sec.  18.    Withdrawal  of  Offer  Before  Acceptance. 

Case  No.  23.    Bosshardt  Co.  v.  Oil  Co.,  171  Pa.  St.  109. 

Facts:  The  Oil  Co.  on  July  31,  1893,  made  a  written 
offer  to  supply  oil,  ending  as  follows : 

' '  We  extend  to  you  a  refusal  of  making  the  contract  on 
the  above  basis  for  the  term  of  sixty  days  from  this  date. 
*     *     *     "    On  Sept.  25,  1893,  the  Oil  Co.  wrote: 

1 '  We  wish  to  advise  you  that  we  withdraw  our  offer  of 
July  31st.  *  *  *  You  will  therefore  consider  the 
same  cancelled." 

Point  Involved:  May  an  offer  be  withdrawn  before  the 
period  of  its  expiration  by  mere  lapse  of  time?  Does  an 
express  promise  to  keep  it  open  a  certain  length  of  time 
bind  the  offeror  to  keep  it  open  for  such  time? 

Mr.  Justice  McCollum  :  ' '  *  *  *  There  being  no  con- 
sideration for  the  offer  in  this  case,  the  defendant  had  a 
clear  right  to  withdraw  it  at  any  time  before  there  was  an 
acceptance  of  it.     *     *     *" 

Question  23:  (1.)  State  the  facts  in  the  above  case,  the 
question  presented  and  the  court's  decision. 

(2.)  ^Yhy  has  one  a  legal  right  to  break  his  promise  to  keep 
an  offer  open  ? 

(3.)  Suppose,  in  the  case  stated,  the  offeree  had  paid  the  sum 
of  $10.00  to  the  offeror  as  a  consideration  for  keeping  the  offer 
open  for  60  days.    Could  it  then  have  been  withdrawn  ? 

Sec.  19.    Notice  of  Withdrawal  Necessary. 

Case  No.  24.     Kempner  v.  Kohn,  47  Ark.  519. 
Facts:   The  facts  are  as  follows:  Jan.  30,  1885,  P,  at 
Little  Rock,  offered  his  lot  to  D  at  Hot  Springs.    Feb.  7, 


38  CONTRACTS 

1885,  D  wrote  accepting  offer  on  terms  proposed.  Febru- 
ary 7, 1885,  P  wrote  withdrawing  his  offer.  February  9, 
1885,  P  received  D's  acceptance.  Assume  P's  revocation 
was  placed  in  postoffice  prior  to  D's  letter  of  acceptance. 
Point  Involved:  Where  an  attempted  revocation  of  an 
offer  is  made,  must  the  knowledge  of  such  revocation 
actually  reach  the  offeree  before  his  acceptance?  Inci- 
dentally, when  is  an  acceptance  complete? 

Smith,  J. :  ' '  *  *  *  The  defendant,  having  caused 
the  question  to  be  submitted  to  the  jury,  under  an  instruc- 
tion drawn  by  his  counsel,  and  having  met  with  an  adverse 
decision,  now  asks  us  to  declare  as  a  matter  of  law,  that 
Kohn's  acceptance  was  unreasonably  delayed.  But  we 
think  the  question  was  properly  resolved  in  favor  of  the 
plaintiff.  The  subject  of  negotiation  was  real  estate, 
which  requires  more  deliberation  than  if  it  had  been  a 
transaction  in  cotton  or  other  particle  of  merchandise. 
It  is  also  less  subject  to  sudden  and  violent  fluctuations 

in  price.     Five  days  was  not  an  unreasonable  time. 

#     #     # 

"Then  as  to  the  attempted  retraction:  An  offer  made 
by  letter  which  is  to  be  answered  in  that  way,  cannot  be 
withdrawn  unless  the  withdrawal  reaches  the  party  to 
whom  it  is  addressed  before  he  has  accepted.  *  *  * 
The  acceptance  was  effectual  to  complete  the  contract 
notwithstanding  Kempner  had  previously  mailed  a  letter 
to  Kohn  announcing  the  retraction  of  the  offer. ' ' 

Question  24:  State  the  facts  in  the  above  case,  the  question 
presented  and  the  court's  decision. 

Sec.  20.    Rejection  of  Offer  as  Terminating  It. 

Case  No.  25.    Fox  v.  Turner,  1  111.  App.  153. 
Point  Involved:  Does  a  rejection  of  an  offer  terminate 
it!    Is  a  counter  offer  a  rejection  ? 

Bailey,  J. :  "*  *  *  An  acceptance,  to  be  good, 
must  in  every  respect  meet  and  correspond  with  the  offer, 


OFFER  AND  ACCEPTANCE  39 

neither  falling  within,  nor  going  beyond,  the  terms  pro- 
posed, but  exactly  meeting  them  at  all  points,  and  closing 
with  them  just  as  they  stand.  Potts  v.  Whitehead,  23 
New  Jersey  Eq.  572.  But  a  proposal  to  accept,  or  an  ac- 
ceptance of  an  offer,  on  terms  varying  from  those  pro- 
posed, amounts  to  a  rejection  of  the  offer  and  a  substitu- 
tion in  its  place  of  a  counter  proposition,  which  cannot 
become  a  contract  until  assented  to  by  the  first  proposer. 
It  is  equivalent  to  saying,  "I  am  not  satisfied  with  your 
proposition  but  I  will  take  it  and  make  certain  modifica- 
tions in  it,  and  submit  it  to  you,  as  a  proposition  of  my 
own  for  your  acceptance. ' '  The  original  offer  thereby 
loses  its  vitality,  being,  so  to  speak,  passed  by  in  the 
negotiation,  so  as  to  be  no  longer  pending  between  the 
parties,  and  it  becomes  an  open  proposition  again  only 
when  renewed  by  the  party  who  first  made  it.  Hence  a 
party  who  has  submitted  a  counter  proposition,  cannot 
without  the  assent  of  the  other  party,  withdraw  or  aban- 
don the  same  and  then  accept  the  original  offer  which  he 
has  virtually  rejected.     *     *     *"     (Citing  cases.) 

Question  25:    State  the  question  involved  in  the  above  case 
and  the  answer  thereto. 

Sec.  21.    Lapse  of  Offer  by  Death  or  Insanity  of  Offeror. 

Case  No.  26.     Beach  v.  M.  E.  Church,  96  111.  177. 

Facts:  Lorenzo  Beach  in  February,  1874,  signed  the 
following  paper: 

"Fairbury,  February  14,  1874. 

"We,  the  undersigned,  agree  to  pay  the  sum  set  oppo- 
site our  respective  names,  for  the  purpose  of  erecting  a 
new  M.  E.  church  in  this  place,  said  sums  to  be  paid  as 
follows:  One-third  to  be  paid  when  contract  is  let,  one- 
third  when  building  is  enclosed,  one-third  when  building 
is  completed.  Probable  cost  of  said  church  from  ten 
thousand  dollars  ($10,000)  to  twelve  thousand  dollars 
($12,000).' ' 

To  which  he  attached  and  subscribed  the  following: 


40  CONTRACTS 

"Fairbury,  1874. 
"Dr.  Beach  gives  this  subscription  on  the  condition 
that  the  remainder  of  eight  thousand  dollars  is  sub- 
scribed. 

"Lorenzo  Beach  $2,000." 

Beach  was  adjudged  insane  and  conservators  appointed 
in  April,  1875;  other  subscriptions  to  the  amount  of 
$8,000.00  were  received  and  the  building  begun  in  Sep- 
tember, 1876;  in  1878  Beach  died.  This  suit  was  begun 
shortly  before  Beach's  death  against  his  conservators; 
dying  before  trial,  his  heirs  were  made  parties. 

Point  Involved:  If,  after  an  offer  is  made,  and  before 
its  acceptance,  the  offeror  becomes  insane,  or  dies,  does 
the  offer  thereby  lapse  ?  Incidentally,  what  is  the  nature 
of  a  charitable  subscription  to  pay  money? 

Mr.  Chief  Justice  Diokey  :  "  *  *  *  There  is  nothing 
in  the  record  tending  to  show  that  the  church,  in  this 
case,  took  any  action,  upon  the  faith  of  the  subscription, 
until  after  Dr.  Beach  was  adjudged  insane,  or  that  the 
church  paid  money,  or  incurred  any  liability.  His  in- 
sanity, by  operation  of  law,  was  a  revocation  of  the  offer. 
In  Pratt,  Administratrix,  etc.,  v.  The  Trustees  of  the 
Baptist  Society  of  Elgin,  93  111.  475,  this  court  said,  in 
relation  to  such  a  subscription : 

"  'The  promise,  in  such  case,  stands  as  a  mere  offer, 
and  may,  by  necessary  implication,  be  revoked  at  any  time 
before  it  is  acted  upon.  It  is  the  expending  of  money,  etc., 
or  incurring  of  legal  liability  on  the  faith  of  a  promise 
(of  this  kind)  which  gives  the  right  of  action.  *  *  * 
Until  acted  upon,  there  is  no  mutuality,  and,  being  only 
an  offer,  and  susceptible  of  revocation  at  any  time  before 
being  acted  upon,  it  follows  that  the  death  of  the  prom- 
isor, before  the  offer  is  acted  upon,  is  a  revocation  of  the 
offer.  *  *  *  The  continuance  of  an  offer  is  in  the 
nature  of  its  repetition,  which,  of  course,  necessarily  re- 
quires some  one  capable  of  making  a  repetition.  Ob- 
viously, this  can  no  more  be  done  by  a  dead  man  than  a 
contract  can,  in  the  first  instance,  be  made  by  a  dead 
man. ' 


OFFER  AND  ACCEPTANCE  41 

' '  Conservators  of  the  person  and  property  of  an  insane 
man  may  perform  personal  contracts  of  their  ward 
legally  subsisting,  under  some  circumstances ;  but  in  this 
case  there  was  no  contract  between  Dr.  Beach  and  the 
church.  The  paper  signed  by  Dr.  Beach  was  of  such  a 
nature  that  no  binding  contract  sprung  therefrom  until 
the  church  had  accepted  the  same  by  incurring  some 
legal  liability,  or  expending  money  upon  the  faith  of  it. 
There  being  no  binding  contract  upon  Dr.  Beach  at  the 
time  that  his  conservators  made  the  payments,  they  had 
no  lawful  authority  to  make  the  same,  and  the  estate  of 
Dr.  Beach  was  not  bound  thereby." 

Question  26:  (1.)  What  is  the  reason  given  by  the  court 
that  death  or  insanity  should  terminate  a  continuing,  unaccepted 
offer? 

(2.)  Why  was  there  no  contract  in  this  case  prior  to  Dr. 
Beach 's  insanity  ? 

(Note :  Charitable  subscriptions  are  unenforceable  until  acted 
upon,  because  they  are  not  upon  consideration,  that  is,  the 
promisee  has  made  no  corresponding  enforceable  promise  to  do 
anything  and  has  sustained  no  detriment.  This  is  generally 
conceded.  If,  however,  the  subscription  is  acted  upon  by  the 
promisee,  the  subscription  thereupon  becomes  binding.  This, 
also,  is  the  law  everywhere.  If  there  are  promises  by  several 
subscribers  made  mutually  dependent,  some  courts  enforce  them. 
See  exhaustive  note  on  this  subject  in  48  Lawyers'  Reports 
Annotated,  N.  S.,  p.  783.) 

(c)    What  Constitutes  Acceptance. 

§  22.  It  completes   the   contract.  §  24.  Acceptance  may  be  shown  by 

§  23.  It   must   be    in   the    terms   of  conduct. 

the  offer.  §  25.  When  acceptance  complete. 

Sec.  22.    Acceptance  Completes  the  Contract. 

(Note:  Whenever  is  given  that  which  constitutes  an  ac- 
ceptance to  an  existing  proposition  so  stated  and  made  that  it 
legally  constitutes  an  offer,  the  contract  is  complete.  The  con- 
tractual tie  has  been  formed.  Neither  party  can  withdraw 
without  the  other 's  consent ;  neither  party  can  insist  upon  modi- 
fications. 

An  offer  unaccepted  is  withdrawable  before  acceptance;  an 


42  CONTRACTS 

acceptance  completes  the  contract.  For  this  reason,  when  counter 
propositions  are  made  it  may  become  very  important  to  deter- 
mine which  proposition  constitutes  the  offer  and  which  the 
acceptance.) 

Sec.  23.    The  Acceptance  Must  Be  in  the  Terms  of  the 

Offer. 

Case  No.  27.  Four  Oil  Co.  v.  United  Oil  Producers, 
145  Cal.  623. 

Facts:  Suit  to  recover  for  breach  of  alleged  contract 
to  buy  oil.  The  evidence  showed  an  offer  to  sell  petrol- 
eum of  a  'guaranteed  gravity  of  not  less  than  15  degrees 
Beaume,'  and  a  reply  to  that  offer  stating,  'but  we  wish 
this  distinctly  understood  under  this  agreement  to  be 
15  degrees  Beaume  at  a  temperature  of  60  degrees 
Fahrenheit. ' 

Point  Involved:  If  the  offeree  responds  upon  terms 
and  conditions  not  stated  in  the  offer,  is  the  response 
an  acceptance  of  such  offer? 

Hinshaw  ,  J.,  delivered  the  opinion  of  the  court : 
***  *  *  An  offer  imposes  no  obligation  unless  it  is 
accepted   upon   the   terms    upon   which    it   was   made. 

*  *     *    A   qualified    acceptance   is    a    new   proposal. 

*  *  *  Under  these  principles  of  law  it  is  clear  *  *  * 
that  the  minds  of  the  parties  had  not  met  in  the  creation 
of  a  legal  obligation,  and  for  the  reason  that  the  accept- 
ance of  the  defendant  was  conditional  and  imported  into 
the  contract  a  term  not  found  in  the  original  proposal, 
and  one  requiring  the  assent  of  the  plaintiff  before  either 
could  be  bound." 

Question  27:  (1.)  State  the  facts  in  the  above  case,  the 
question  presented  and  the  court's  decision  thereupon. 

(2.)  A  wrote  B  offering  B  a  certain  price  for  his  old  corn 
and  a  certain  price  for  his  new  corn.  B  replied  accepting  as 
to  the  new  corn.  Is  there  a  contract?  (Miller  v.  Sharp,  100 
N.  E.  108.) 

(3.)  A  offered  a  reward  for  the  apprehension  and  evidence 
leading  to  B  *s  conviction.  C,  after  B  's  apprehension  by  another, 
furnished  the  information  upon  which  B  was  convicted.    Is  he 


OFFER  AND  ACCEPTANCE  43 

entitled  to  the  reward?    Fitch  v.  Snedaker,  38  N.  Y.  248;  Wil- 
liams v.  R'w'y,  191  111.  610. 

Sec.  24.    Acceptance  May  Be  Shown  by  Conduct. 

Case  No.  28.  Hobbs  v.  Massasoit  Whip  Company,  158 
Mass.  194. 

Facts:  Plaintiff,  Hobbs,  had  sent  eel  skins  to  the  de- 
fendant, on  several  different  occasions,  and  had  been 
paid  for  them.  He  then  sent  the  eel  skins  in  question, 
and  received  no  reply  from  the  Company  which  kept  them 
for  several  months  till  they  became  worthless.  Plaintiff 
then  sued  for  the  price.  The  defendant  claims  there  was 
no  contract  and  that  having  no  contract  with  the  plain- 
tiff it  was  under  no  duty  to  go  to  the  expense  and  trouble 
of  notifying  him  of  the  rejection  of  skins  which  it  had 
never  ordered  and  did  not  want  or  make  use  of.  Plain- 
tiff claims  that  owing  to  his  prior  relations  with  the  de- 
fendant, the  defendant  was  under  obligations  to  notify 
him  of  its  rejection  and  that  its  failure  so  to  do  was  evi- 
dence of  its  acceptance  from  which  a  jury  might  properly 
find  a  contract. 

Point  Involved:  May  silence  by  an  offeree  who  is  in 
receipt  of  goods  from  the  offeror,  be  considered  as  an 
acceptance  of  the  offer  if  the  prior  dealings  of  the  par- 
ties have  been  such  that  the  offeror  is  justified  in  believ- 
ing that  he  will  be  notified  if  there  is  a  rejection  of  his 
offer? 

Holmes,  J. :  *  *  This  is  an  action  for  the  price  of  eel  skins 
sent  by  the  plaintiff  to  the  defendant,  and  kept  by  the 
defendant  some  months,  until  they  were  destroyed.  It 
must  be  taken  that  the  plaintiff  received  no  notice  that  the 
defendant  declined  to  accept  the  skins.  The  case  comes 
before  us  on  exceptions  to  an  instruction  to  the  jury, 
that,  whether  there  was  any  prior  contract  or  not,  if  the 
skins  are  sent  to  the  defendant,  and  it  sees  fit,  whether 
it  has  agreed  to  take  them  or  not,  to  lie  back,  and  to  say 
nothing,  having  reason  to  suppose  that  the  man  who  has 
sent  them  believes  that  it  is  taking  them,  since  it  says 


44  CONTRACTS 

nothing  about  it,  then,  if  it  fails  to  notify,  the  jury  would 
be  warranted  in  finding  for  the  plaintiff. 

"Standing  alone,  and  unexplained,  this  proposition 
might  seem  to  imply  that  one  stranger  may  impose  a  duty 
upon  another,  and  make  him  a  purchaser,  in  spite  of 
himself,  by  sending  goods  to  him,  unless  he  will  take  the 
trouble,  and  be  at  the  expense,  of  notifying  the  sender 
that  he  will  not  buy.  The  case  was  argued  for  the  de- 
fendant on  that  interpretation.  But,  in  view  of  the  evi- 
dence, we  do  not  understand  that  to  have  been  the  mean- 
ing of  the  judge,  and  we  do  not  think  that  the  jury  can 
have  understood  that  to  have  been  his  meaning.  The 
plaintiff  was  not  a  stranger  to  the  defendant,  even  if  there 
was  no  contract  between  them.  He  had  sent  eel  skins 
in  the  same  way  four  or  five  times  before,  and  they  had 
been  accepted  and  paid  for.  On  the  defendant's  testi- 
mony, it  is  fair  to  assume  that,  if  it  had  admitted  the 
eel  skins  to  be  over  twenty-two  inches  in  length,  and  fit 
for  its  business,  as  the  plaintiff  testified,  and  the  jury 
found  that  they  were,  it  would  have  accepted  them ;  that 
this  was  understood  by  the  plaintiff;  and,  indeed,  that 
there  was  a  standing  offer  to  him  for  such  skins.  In 
such  a  condition  of  things,  the  plaintiff  was  warranted 
in  sending  the  defendant  skins  conforming  to  the  re- 
quirements, and  even  if  the  offer  was  not  such  that  the 
contract  was  made  as  soon  as  skins  corresponding  to  its 
terms  were  sent,  sending  them  did  impose  on  the  defend- 
ant a  duty  to  act  about  them;  and  silence  on  its  part, 
coupled  with  a  retention  of  the  skins  for  an  unreason- 
able time,  might  be  found  by  the  jury  to  warrant  the 
plaintiff  in  assuming  that  they  were  accepted,  and  thus 
to  amount  to  an  acceptance.  See  Bushnell  v.  Wheeler, 
15  Q.  B.  442 ;  Benjamin  on  Sales,  162, 164;  Taylor  v.  Dex- 
ter Engine  Co.,  146  Mass.  613,  615.  The  proposition 
stands  on  the  general  principle  that  conduct  which  im- 
ports acceptance  or  assent  is  acceptance  or  assent  in  the 
view  of  the  law,  whatever  may  have  been  the  actual  state 
of  mind  of  the  party,— a  principle  sometimes  lost  sight 
of  in  the  cases.     *     *     * ' '  ' 


OFFER  AND  ACCEPTANCE  45 

Question  28:  (1.)  State  the  facts  in  the  above  case,  the 
question  involved  and  the  court 's  decision. 

(2.)  Did  the  court  hold  as  a  matter  of  law  that  there  was  a 
contract  in  this  case  ?    What  did  it  hold  ? 

(3.)  A  subscribes  for  the  B  magazine.  His  subscription  ex- 
pires but  the  magazine  continues  to  come.  It  is  received  by  A  for 
another  year.    Is  he  liable  for  this  additional  year  ? 

Sec.  25.    When  Acceptance  Complete;  Contract  by  Mail 

or  Telegraph. 

Case  No.  29.  Lucas  v.  W.  U.  Tel.  Co.,  131  Iowa  Re- 
ports, 669. 

Facts:  Lucas  on  the  evening  of  Nov.  11,  1912,  received 
a  letter  from  one  Sas  offering  to  exchange  real  estate  and 
stating :  ' '  I  will  have  to  know  at  once  as  I  have  another 
deal  pending. ' '  Lucas  replied  by  telegram  at  9 :10  A.  M. 
the  following  day.  The  telegraph  company  did  not  send 
the  message  until  4:41  P.  M.  and  Sas  received  reply  at 
6.03  P.  M.  Sas  had  sold  the  property  at  3 :30  P.  M.  to 
another  party  and  wrote  that,  not  hearing  from  Lucas, 
he  had  decided  Lucas  did  not  want  the  property.  Lucas 
sued  the  telegraph  company  for  loss  of  the  contract  by 
its  negligent  delay.  The  trial  court  held  that  by  the 
negotiations  a  contract  had  resulted  notwithstanding  the 
delay  and  therefore  Lucas  had  no  case  against  the  tele- 
graph company,  but  should  pursue  his  action  against 
Sas  for  breach  of  contract.    Lucas  appeals. 

Points  Involved:  If  an  offeror  in  making  an  offer  to 
one  at  a  distance  authorizes  the  use  of  a  certain  agency 
for  transmission  of  the  reply  and  such  agency  is  made 
use  of,  when  is  the  acceptance  complete ;  if  another  means 
of  transmission  than  the  one  authorized  is  used  by  the 
offeree,  when  is  the  acceptance  complete?  Does  the  use 
of  a  particular  agency  of  transmission  by  the  offeror 
impliedly  direct  its  use  by  the  offeree? 

Ladd,  J.:  "The  proposition  of  an  exchange  was  made 
to  plaintiff  by  letter.  In  committing  it,  properly  ad- 
dressed to  the  mails  for  transmission,  the  postoffice  be- 
came the  agent  of  Sas  to  carry  the  offer,  he  taking  the 


46  CONTRACTS 

chances  of  delays  in  the  transmission.  *  *  *  Having 
sent  the  proposition  by  mail  he  impliedly  authorized  its 
acceptance  through  the  same  agency.  Such  implication 
arises  (1)  when  the  post  is  used  to  make  the  offer  and 
no  other  mode  is  suggested,  and  (2)  when  the  circum- 
stances are  such  that  it  must  have  been  within  the  con- 
templation of  the  parties  that  the  post  would  be  used 
in  making  the  answer.  *  *  *  The  contract  is  com- 
plete in  such  a  case  when  the  letter  containing  the  ac- 
ceptance is  properly  addressed  and  deposited  in  the 
United  States  mails.  *  *  *  This  is  on  the  ground 
that-  the  offeror,  by  depositing  this  letter  in  the  post- 
office,  selects  a  common  agency  through  which  to  conduct 
the  negotiations,  and  the  delivery  of  the  letter  to  it  is  in 
effect  a  delivery  to  the  offeror.  Thereafter  the  acceptor 
has  no  right  to  the  letter,  and  cannot  withdraw  it  from 
the  mails.  Even  if  he  should  succeed  in  doing  so  the 
withdrawal  will  not  invalidate  the  contract  previously 
entered  into.  But  the  plaintiff  did  not  adopt  this  course. 
On  the  contrary,  he  chose  to  indicate  his  acceptance  by 
transmitting  a  telegram  to  Sas  by  the  defendant  com- 
pany. Sas  had  done  nothing  to  indicate  his  willingness 
to  adopt  such  agency  and  the  defendant,  in  undertaking 
to  transmit  the  message,  was  acting  solely  as  the  agent 
of  the  plaintiff.  The  latter  might  have  withdrawn  the 
message  or  stopped  its  delivery  at  any  time  before  it 
actually  reached  Sas.  It  is  manifest  that  handing  the 
message  to  his  own  agent  was  not  notice  to  the  sendee  of 
the  telegram.  The  most  formal  declaration  of  an  inten- 
tion of  acceptance  of  an  offer  to  a  third  person  will  not 
constitute  a  contract.  A  written  letter  or  telegram,  like 
an  oral  acceptance,  must  be  communicated  to  the  party 
who  had  made  the  offer,  or  to  someone  expressly  or  im- 
pliedly authorized  to  receive  it ;  and  this  rule  is  not  com- 
plied with  by  delivering  it  to  the  writer's  own  agent  or 

messenger  even  with  direction  to  deliver  to  the  offeror. 

*     #     # 

"The  party  making  the  offer  may  be  entirely  satisfied 
to  trust  the  mails,  and  not  be  willing  to  chance  the  use  of 


OFFER  AND  ACCEPTANCE  47 

the  telegraph.  *  *  *  It  is  very  evident  on  authority 
and  principle  that,  in  the  absence  of  any  suggestion,  one 
transmitting  an  offer  by  mail  cannot  be  bound  by  an  ac- 
ceptance returned  in  some  other  way  until  it  is  received 
or  he  has  notice  thereof.  The  plaintiff,  then,  did  not  ac- 
cept the  offer  of  Sas  until  the  telegram  was  received  by 
the  latter,  a  few  minutes  after  6  o  'clock  P.  M.  of  the  day 
after  the  letter  had  been  received,  and  the  question  arises 
whether  this  was  'at  once'  within  the  meaning  of  the 
offer  which  stated  that  another  deal  was  pending.  Like 
'forthwith'  and  'immediately,'  'at  once'  does  not 
mean  instantaneously,  but  requires  action  to  be  taken 
within  a  reasonable  time.  *  *  *  It  is  doubtful  whether 
the  same  vigilance  should  be  exacted  in  the  acceptance 
of  an  offer  to  exchange  or  purchase  real  estate  as  in  trans- 
actions relating  to  the  transfer  of  chattel  property.  See 
Kemper  v.  Cohn,  47  Ark.  519,  58  Am.  Rep.  775,  S.  W. 
869.  The  circumstances  of  each  case  necessarily  have  an 
important  bearing.  There  was  no  evidence  of  the  time 
a  letter,  if  promptly  mailed,  might  have  reached  Sas.  He 
has  indicated  in  his  letter  that  he  was  contemplating 
another  deal,  and  we  think  ordinary  minds  fairly  differ 
as  to  whether,  in  these  circumstances,  an  acceptance 
twenty-three  or  twenty-four  hours  after  the  letter  had 
been  received  was  in  time  to  bind  the  party  making  the 
offer,  and  the  issue  was  for  the  jury  to  determine.,, 

Question  29:  (1.)  State  the  question  presented  in  the  above 
case  and  the  court's  decision. 

(2.)  What  two  criteria  are  named  by  the  court  as  denoting 
the  means  by  which  the  offeror  intends  his  offer  to  be  accepted  ? 

(3.)  If  an  acceptance  is  sent  in  any  other  manner  than  that 
authorized  by  the  offeror,  when  is,  if  ever,  the  offer  complete  ? 

(4.)  A  wired  an  offer  to  sell  oil  to  B.  The  telegram  was  sent 
at  9  A.  M.  and  received  by  B  in  due  course  at  11 :15  A.  M.  B 
wired  his  acceptance  at  12:45  P.  M.,  and  it  reached  A  in  due 
course  at  4 :15  P.  M.  At  2  P.  M.  of  the  same  day  A  had  wired  a 
revocation  of  his  offer,  which  reached  B  at  3  P.  M.  Was  there  a 
contract  ?    If  so,  at  what  time  ? 

(5.)     H  wrote  the  X  corporation,  asking  that  certain  shares 


48  CONTRACTS 

be  allotted  to  him  and  offering  to  pay  a  certain  price  therefor. 
The  directors  of  the  X  Co.  instructed  their  agent  through  the 
mail  to  allot  H  such  shares,  and  the  shares  were  registered  as  H  's. 
On  these  facts  is  there  a  contract?  (Hebb's  Case  L.  R.  4  Eq.  9.) 
(6.)  A,  from  Peoria,  Illinois,  calls  on  B  at  his  office  in  Chi- 
cago. B  offers  A  an  automobile  for  $500.  A  desires  time  to 
consider,  and  B  says,  "Think  it  over  and  let  me  know  within 
3  days."  B  knows  that  A  comes  from  out  of  town  and  is  going 
back  home  that  day.  A,  on  reaching  Peoria,  within  3  days  mails 
B  his  acceptance.  The  letter  is  lost  and  never  reaches  A.  Is 
there  a  contract  ? 

(Note:  See  also,  on  this  question,  Adams  v,  Lindsell,  1  B.  & 
Aid.  (Eng.)  681;  Trevor  v.  Wood,  36  N.  Y.  307;  Household  Ins. 
Co.  v.  Grant,  41  L.  T.  N.  S.  298.) 

B.    The  Validity  of  the  Assent  Contained  in  the  Offer 
and  Acceptance. 

(Note :  Having  now  seen  what  constitutes  offer  and  acceptance, 
and  assuming  that  words  have  been  spoken  or  acts  done  which 
constitute  in  form,  an  offer  and  an  acceptance,  yet  we  may  find, 
by  evidence  aliunde  that  a  binding  contract  does  not  exist.  There 
may  be  extrinsic  circumstances  of  mistake,  fraud,  undue  influ- 
ence, etc.,  that  impair  the  validity  of  the  assent  that  has  in  form 
been  given. ) 

(a)  Mistake    preventing    formation       (c)  Fraud,  misrepresentation,  duress 

of  contract.  and  undue  influence  making 

(b)  Fraud  preventing  formation  of  contract  voidable  (not  void). 

contract. 

(a)    Mistake  Preventing  Formation  of  Contract. 

§  26.  Mutual  mistake  as  to  existence       §  27.  Mutual  mistake  as   to  value, 
or  identity  of  subject  mat-  quality,  etc. 

ter,  etc. 

Sec.  26.    Mutual  Mistake  as  to  Existence  or  Identity  of 
Subject  Matter  or  Identity  of  Terms  Used. 

Case  No.  30.  Eiegel  v.  Amer.  Life  Ins.  Co.,  153  Pa. 
134. 


MISTAKE  49 

Facts:  One  L  had  an  insurance  policy  on  his  life 
in  the  A.  L.  Ins.  Co.  in  favor  of  R,  his  creditor.  L  dis- 
appeared and  R  kept  up  the  premiums.  Finally,  find- 
ing the  matter  burdensome,  R  surrendered  the  policy 
to  the  insurance  company  and  took  out  a  paid-up  policy 
in  a  much  less  sum  in  return  therefor.  As  a  matter 
of  fact,  L  was  dead  at  the  time  of  the  agreement.  Both 
parties  had  acted  on  the  assumption  that  he  was  alive. 
This  is  a  suit  brought  to  have  that  settlement  set  aside 
and  give  R  the  full  benefit  of  the  former  policy. 

Point  Involved:  If  an  agreement  is  made  based  on 
a  mutual  mistake  as  to  the  condition  or  existence  of  the 
subject  matter,  does  a  contract  result? 

Mr.  Justice  Sterkett  :  ' '  *  *  *  The  general  rule  is 
that  an  act  done  or  a  contract  made,  under  a  mistake  of  a 
material  fact  is  voidable  and  relievable  in  equity.  The  fact 
of  course  must  be  material  to  the  act  or  contract  *  *  *. 
The  principle  is  illustrated  by  familiar  examples,  em- 
ployed by  text  writers,  thus :  A  agrees  to  buy  a  certain 
horse  from  B.  It  turns  out  that  the  horse  is  dead  at  the 
time  of  the  bargain,  though  neither  party  is  then  aware 
of  the  fact.    The  agreement  is  void. 

"A  agrees  to  buy  a  house  belonging  to  B.  The  house 
was  previously  destroyed  by  fire,  but  the  parties  dealt 
in  ignorance  of  the  fact.  The  contract,  not  being  for 
the  sale  of  the  land  on  which  the  house  stood,  was  not 
enforceable. 

"It  cannot  be  doubted  that  in  exchanging  the  old  for 
the  new  policy  both  parties  acted  on  the  basis  that 
Leisenring  was  then  alive.     *     *     * 

1 1  *     #     #    ^n(j  •{.  •  g  now  adjUc[ge(j  an(j  decreed  that 

the  contract  under  which  said  exchange  of  insurance 
policies  was  made  be  rescinded,  that  the  paid-up  policy 
for  $2,500  be  surrendered  and  cancelled,  and  that  the 
original  policy  of  insurance  be  reinstated,  as  of  the  date 
of  its  surrender;  and  that  the  defendant  company  pay 
to  the  plaintiff  the  sum  of  $6,000.     *     *     *" 

Question  30:  State  the  facts  in  the  above  case,  the  question 
presented  and  the  court 's  decision. 


50  CONTRACTS 

Case  No.  31.  Indiana  Fuel  Supply  Co.  v.  Indianapolis 
Basket  Co.,  84  Northeastern  Reporter  (Ind.)  776. 

Facts:  "*  *  *  This  action  was  brought  by  ap- 
pellant before  a  magistrate  to  recover  the  contract  price 
of  coal,  the  appellee  contending  as  a  defense,  among 
other  things,  (1)  that  because  of  a  misunderstanding 
between  the  buyer  and  the  seller  as  to  the  grade  of  coal 
the  contract  called  for,  the  buyer  having  in  mind  Indiana 
domestic  egg  coal,  double  screened,  and  the  seller  hav- 
ing in  mind  Indiana  steam  egg  coal,  screened  but  once, 
that  the  minds  of  the  contracting  parties  never  met  and 

that  there  was  therefore  no  contract  between  them; 

*     #     #>> 

Rabb,  Justice:  " Mutual  assent  is  necessary  to  the 
formation  of  every  contract,  and  any  mistake  of  the 
parties  by  which  one  of  the  contracting  parties  has  in 
mind  one  thing  as  the  subject  matter  of  the  contract, 
and  the  other  party  has  in  mind  something  entirely  dif- 
ferent, and  where  the  terms  of  the  contract  are  such 
that  it  will  mean  either  the  one  or  the  other,  there  is 
no  meeting  of  the  minds  of  the  contracting  parties,  and 
therefore  no  contract.  If  in  this  case  the  terms  of  the 
contract  entered  into  by  the  parties  would  properly  de- 
scribe domestic  egg  coal,  and  could  be  understood  by 
either  of  the  parties  as  meaning  domestic  egg  coal,  and 
would  also  describe  steam  egg  coal,  and  could  be  under- 
stood by  either  of  the  parties  as  meaning  steam  eggj 
coal,  and  if  one  of  them  had  in  mind  when  he, contracted 
for  egg  coal  the  higher  grade  of  coal,  and  the  other  had 
in  mind  when  entering  into  the  contract  the  lower  grade 
of  coal,  and  each  party  believed  that  by  the  terms  of 
the  contract  he  was  contracting  for  the  particular  kind 
of  coal  he  had  in  mind,  then  no  contract  was  entered 
into  between  the  parties.  24  A.  &  E.  Ency.  of  Law,  P. 
1034,  and  cases  cited." 

(Note :     See  also  Case  No.  256,  as  to  Mistake  as  to  Price.) 


MISTAKE  51 

Question  31:  (1.)  State  the  facts  in  the  above  case,  the  ques- 
tion presented  and  the  court's  decision. 

(2.)  Two  ships  Peerless  sail  out  of  Bombay  with*  similar 
cargoes.  A  sells  B  the  cargo  on  the  ship  Peerless  out  of  Bombay. 
A  means  a  certain  one  of  the  ships,  but  B  has  in  mind  the  other. 
Is  there  a  contract  ?    Raffles  v.  Wichelhouse,  2  H.  &  C.  906. 

Sec.  27.    Mutual  Mistake  as  to  Collateral  Matters  of 
Value,  Quality,  Etc. 

Case  No.  32.    Wood  v.  Boynton,  64  Wis.  265. 

Facts:  Wood  found  a  small  uncut  diamond  worth  $700 
to  $1,000.  Thinking  it  was  a  topaz  she  sold  it  for  $1.00 
to  Boynton,  who  also  thought  it  was  a  topaz  and  was  igno- 
rant of  its  true  character.  When  Wood  discovered  that 
the  stone  was  in  fact  a  diamond  she  tendered  back  the 
$1.00  with  interest  and  demanded  possession.  Boynton 
refused,  and  Wood  brought  suit. 

Question:  If  there  is  a  mutual  mistake  as  to  the  qual- 
ity and  value  of  the  subject  matter  of  an  agreement,  does 
such  mistake  affect  the  validity  of  the  contract? 

Taylob,  J.:  "*  *  *  There  is  no  pretense  as  to 
mistake  in  the  identity  of  the  thing  sold.  It  was  *  *  * 
exhibited  to  the  vendee  before  the  sale  was  made,  and  the 
thing  sold  was  delivered  to  the  vendee  when  the  pur- 
chase price  was  paid.  *  *  *  When  this  sale  was 
made  the  value  of  the  thing  sold  was  open  to  the  investi- 
gation of  both  parties ;  neither  knew  its  extrinsic  value, 
and,  so  far  as  the  evidence  in  this  case  shows,  both  sup- 
posed that  the  price  paid  was  adequate.  *  *  *" 
(Judgment  for  defendant) 

Question  32:  State  the  facts  in  the  above  case,  the  question 
presented  and  the  court's  decision. 

(b)  Fraud  Preventing  Formation  of  Contract.  (Fraud 
Consisting  in  Trickery  as  to  the  Very  Nature  of  the 
Act  Done.) 

Sec.  28.  This  Fraud  Defined;  Elements  Thereof. 


52  CONTRACTS 

Case  No.  33.    I.  D.  &  W.  R.  Co.  v.  Fowler,  201  111.  152. 

Facts:  Fowler,  the  plaintiff,  who  sues  for  damages 
for  personal  injuries,  was  a  passenger  on  one  of  defend- 
ant's trains,  going  from  Willow  Hill  to  Ste.  Marie.  Dur- 
ing the  journey  a  bridge  gave  way  and  he  was  injured. 
Nine  days  later,  while  Fowler  was  still  suffering  from 
the  injuries  received,  the  company's  superintendent, 
lawyer,  and  physician,  called  at  his  home  and  secured 
his  mark  as  a  signature  to  a  paper  purporting  to  be  a 
release  of  all  claims  for  damages  for  the  personal  in- 
juries received  on  account  of  the  wreck,  with  a  receipt 
for  $35.00  subjoined.  This  release  is  interposed  as  a  de- 
fense to  the  present  suit.  Fowler  claims  he  did  not 
know  what  he  was  signing  and  that  his  signature  was 
obtained  by  fraudulent  assertions  as  to  the  character 
of  the  paper.  The  jury  found  for  plaintiff  and  the  de- 
fendant appeals. 

Point  Involved:  That  a  release  secured  by  fraud  as 
to  its  legal  character  is  not  binding. 

Mr.  Justice  Carter:  "*  *  *  The  question  whether 
the  release  was  executed  by  appellee  with  full  knowl- 
edge of  its  purport  and  under  circumstances  that  would 
bind  him  is  one  of  fact,  and  has  been  settled  by  the  jury 
*  *  *.  If  the  release  was  obtained  by  fraud  [as  to 
the  character  of  the  paper  signed]  it  was  absolutely  void. 
It  never  had  any  binding  force.     *     *     *  " 

Question  33:  State  the  facts  in  this  case  and  the  point  in- 
volved. 

(Note:  Where  an  instrument  negotiable  in  form  is  secured 
by  fraud  of  this  character,  and  is  sold  to  an  innocent  party,  other 
questions  arise.    See  also  Case  No.  484.) 

(c)    Fraud,  Misrepresentation,  Duress  and  Undue  In- 
fluence Making  Contract  Voidable  (Not  Void), 

§  29.  The  elements  in  fraud.  §  31.  Duress. 

§  30.  Silence    and    concealment    as       §  32.  Undue  influence. 

fraud.  §  33.  Conditions  of  disaffirmance. 


FRAUD  53 

Sec.  29.    The  Elements  in  Fraud. 

(Note :    To  constitute  fraud  there  must  be : 

(1.)  A  false  representation; 

(2.)  Of  a  material  fact; 

(3.)  Known  to  be  false  or  carelessly  made  without  regard  to 
truth; 

(4.)  With  intent  to  deceive ; 

(5.)  Relied  upon; 

(6.)  To  promisee's  damage.) 

Case  No.  34.    Nat.  Cash  Reg.  Co.  v.  Townsend,  137 

N.  C.  652. 

Facts:  Plaintiff  Townsend  bought  a  cash  register 
on  the  statement  that  its  use  would  save  the  expense  of 
a  bookkeeper  and  a  half  of  a  clerk's  time.  He  now  al- 
leges that  these  assertions  are  false  and  seeks  to  rescind 
the  sale  on  the  ground  of  fraud. 

Point  Involved:  Is  a  statement  of  an  opinion  or  a 
commendation  a  fraudulent  representation?  Generally, 
what  constitutes  fraud? 

Brown,  J.:  "•  *  *  The  material  elements  of 
fraud,  as  laid  down  by  the  text  writers,  are,  first,  mis- 
representation or  concealment;  second,  an  intention  to 
deceive,  or  negligence  in  uttering  falsehoods  with  in- 
tent to  influence  the  actions  of  others ;  and  third,  the  suc- 
cess of  the  deceit  in  influencing  the  action  of  the  other 
party.  To  constitute  legal  fraud  which  will  warrant  the 
rescission  of  a  contract,  there  must  be  a  false  representa- 
tion of  a  material  fact.  There  are  cases  in  the  books 
where  courts  of  equity  have  afforded  relief  from  the 
consequences  of  innocent  misrepresentation.  Contracts 
induced  thereby  have  in  some  instances,  and  under  pecu- 
liar circumstances,  been  set  aside;  but  in  all  the  cases 
the  misrepresentation  was  of  a  material  and  subsisting 
fact.  No  particular  rule  can  be  laid  down  as  to  what 
false  representation  will  constitute  fraud,  as  this  must 
necessarily  depend  upon  the  facts  of  each  case,  the  rel- 


54  CONTRACTS 

ative  situation  of  the  parties,  and  their  means  of  infor- 
mation. But  all  the  authorities  are  to  the  effect  that 
where  the  false  representation  is  an  expression  of  com- 
mendation, or  is  simply  a  matter  of  opinion,  the  courts 
will  not  interfere  to  correct  errors  of  judgment.  Walsh 
v.  Hall,  66  N.  C.  236.  The  law  will  not  give  relief  un- 
less the  misrepresentation  be  of  a  subsisting  fact.  Hill 
v.  Gettys,  135  N.  C.  375,  47  S.  E.  449.  What  has  been 
called  'promissory  representation,'  looking  to  the 
future,  as  to  what  the  vendee  can  do  with  the  property, 
how  much  he  can  make  on  it,  and,  in  this  case,  how 
much  he  can  save  by  the  use  of  it,  are  on  a  par  with 
false  affirmations  and  opinions  as  to  the  value  of  prop- 
erty, and  do  not  generally  constitute  legal  fraud.  Ben- 
jamin, Sales,  7th  ed.  483  et  seq.,  Gordon  v.  Parmelee, 
2  Allen,  212;  Long  v.  Woodman,  58  Me.  52,  and  cases 
cited.  Mr.  Clark,  in  his  work  on  Contracts,  states,  in 
substance,  that  commendatory  expressions  or  exagger- 
ated statements  as  to  value  or  prospects,  or  the  like, 
as  where  a  seller  puffs  up  the  value  and  quality  of  his 
goods,  or  holds  out  flattering  prospects  of  gain,  are  not 
regarded  as  fraudulent  in  law.  Pp.  332-334.  It  is  the 
duty  of  the  purchaser  to  investigate  the  value  of  such 
expressions  of  commendation.  He  cannot  safely  rely 
upon  them.  If  he  does  he  cannot  treat  it  as  fraud,  either 
for  the  purpose  of  maintaining  a  deceit,  or  for  the  pur- 
pose of  rescinding  a  contract  at  law  or  in  equity.  Saund- 
ers v.  Hatterman,  24  N.  C.  (2  Ired.  L.)  32;  37  Am.  Dec. 
404;  14  Am.  &  Eng.  Enc.  Law,  p.  34,  and  cases  cited. 
Mr.  Kerr,  in  his  work  on  Fraud  and  Mistake,  at  page 
83,  says:  'A  misrepresentation  to  be  material  should 
be  in  respect  of  an  ascertainable  fact,  as  distinguished 
from  a  mere  matter  of  opinion.  A  representation  which 
merely  amounts  to  a  statement  of  opinion  *  *  *  goes 
for  nothing,  though  it  may  not  be  true,  for  a  man  is  not 
justified  in  placing  reliance  on  it.'  Again:  'man  who  re- 
lies on  such  affirmations  made  by  a  person  whose  inter- 
est might  so  readily  prompt  him  to  invest  the  property 


FRAUD  55 

with  exaggerated  value  does  so  at  his  peril,  and  must 
take  the  consequences  of  his  own  imprudence/  "  *  *" 
"It  is  possible  that,  if  the  defendant  and  his  clerks 
persevere  in  their  efforts  to  master  this  machine,  he 
may  agree  with  his  brother  that  'the  cash  register  is  a 
good  thing.'  But  if  it  turns  out  that  he  has  sustained 
loss,  not  from  any  mechanical  defect  in  the  machine,  he 
must  attribute  it  to  his  own  negligence  and  indiscretion. 
He  did  not  exercise  that  diligence  in  making  inquiry 
which  the  law  expects  of  a  reasonable  and  careful  per- 
son.   VigUantibus  et  non  dormientibus  jura  subveniunt." 

Question  34:  (1.)  State  the  facts,  the  question  presented  and 
the  court 's  decision  in  the  above  case. 

(2.)  Why  was  the  statement  in  this  case  one  of  opinion  rather 
than  fact  ? 

Case  No.  35.    Brady  v.  Cole,  164  111.  116. 

Me.  Justice  Phillips  :  * '  *  *  *  It  is  not  sufficient 
that  Cole  made  statements  that  she  was  making  a  good 
trade  and  bettering  her  condition  and  that  she  could 
sell  enough  lots  off  the  tract  of  land  purchased  by  her 
to  pay  for  the  house.  Those  statements  were  mere  mat- 
ters of  opinion  and  the  mere  expression  of  an  opinion 
held  by  a  party  cannot,  standing  alone,  be  held  a  mis- 
representation. *  *  *  The  reason  of  this  rule  is 
that  while  the  person  to  whom  the  representations  were 
made  has  a  right  to  rely  upon  them,  he  is  assumed  to 
be  equally  able,  from  his  own  opinion,  to  come  to  as 
correct  a  decision  as  the  other  party,  and  therefore  can- 
not claim  to  be  misled  by  such  opinion.  Promises  for 
the  future  and  hope  of  realizing  speculative  profits  are 
not  present  fraud.     *     *     *" 

Question  35:  What  were  the  facts  in  this  case  and  what  did 
the  court  decide?  Is  this  statement  of  value,  a  statement  of 
opinion  or  fact  ? 

Case  No.  36.    Biewer  v.  Mueller,  254  111.  315. 

Facts:    Biewer  owned  certain  lots  in  Chicago,  which 


56  CONTRACTS 

he  conveyed  to  Mueller  for  certain  hotel  property  sit- 
uated in  Logansport,  Indiana.  A  suit  brought  by  a  third 
party  was  pending  at  the  time,  which  sought  to  estab- 
lish a  lien  on  the  Logansport  property.  As  security 
against  the  possible  successful  outcome  of  this  suit, 
Mueller  gave  Biewer  two  deeds  to  Minnesota  property, 
which  Biewer  had  never  seen,  and  which  Mueller  repre- 
sented to  be  worth  $16,000,  subject  to  a  $4,000  mortgage. 
As  a  matter  of  fact,  this  land  was  not  worth  $4,000,  the 
amount  of  the  incumbrance  upon  it. 

Point  Involved:  Can  value  ever  be  stated  as  a  fact 
rather  than  an  opinion?    Under  what  circumstances? 

Mb.  Justice  Dunn  :  "*     *     * 

"It  is  argued  for  the  appellants  that  the  value  of  the 
property  was  equally  open  to  the  investigation  of  both 
parties  and  was  a  matter  of  opinion,  against  the  false 
statement  of  which  equity  will  not  relieve.  It  is  true 
that  Biewer  might  have  gone  to  Minnesota  and  seen 
the  land,  but  it  is  not  true  that  the  parties  had,  at  the 
time  the  trade  was  made,  equal  means  of  knowledge. 
Mueller  owned  the  land,  had  seen  it  and  would  be  pre- 
sumed to  know  something  of  its  value,  while  Biewer  had 
never  seen  the  land,  which  was  in  a  distant  state.  One 
cannot,  by  taking  advantage  of  such  a  situation,  induce 
another  to  accept  his  false  statement  of  a  fact  and  escape 
the  consequences  of  his  fraud  by  saying  the  other  had 
no  right  to  believe  him.  The  property  about  the  mis- 
represensation  of  the  value  of  which  complaint  is  made 
was  not  the  property  directly  involved  in  the  trade.  It 
was  collateral  to  the  principal  transaction,  part  of  whose 
terms  it  was  designed  to  secure,  and  the  representation 
was  made  not  to  induce  the  appellee  to  purchase  the 
property,  but  to  accept  it  as  security.  The  general  rule 
is  that  statements  as  to  the  value  of  a  business  or  of 
property,  made  to  induce  one  to  buy  or  invest  money, 
are  treated  as  expressions  of  opinion,  only,  and  if  so  in- 
tended and  understood  do  not  constitute  fraud,  in  the 
absence  of  any  concealment  or  misrepresentation  of  ma- 
terial, extrinsic  facts.    'The  reason  of  the  rule  is  that 


FRAUD  57 

such  statements  are  expressions  of  opinion;  but  where 
they  are  made  with  the  intention  that  they  shall  be  under- 
stood as  statements  of  fact,  and  not  as  the  expressions 
of  opinion,  they  will  constitute  fraud.'  (Leonard  v. 
Springer,  197  111.  532 ;  Murray  v.  Tolman,  162  id.  417 ; 
Allen  v.  Hart,  72  id.  104.)  The  false  statement  of  value 
was  here  made  by  Mueller,  having  superior  means  of 
knowledge,  and  was  relied  upon  as  a  matter  of  fact  and 
not  opinion.  It  constituted  fraud,  which  violated  the 
agreement  entered  into  partly  in  reliance  upon  it." 

Question  36:  (1.)  State  the  facte  in  the  above  case,  the  ques- 
tion presented  and  the  court's  decision. 

(2.)  How  do  you  distinguish  this  case  from  cases  (34) 
and  (35)  ? 

Sec.  30.    Silence  and  Concealment  as  Fraud. 

Case  No.  37.     Grigsby  v.  Stapleton,  94  Mo.  423. 

Facts:  Suit  for  the  contract  price  of  100  head  of  cat- 
tle. Defense,  that  the  seller  knew  and  did  not  disclose 
to  the  buyer,  who  did  not  know,  that  the  cattle  had 
"Texas  Fever,"  a  latent  disease  not  readily  discover- 
able on  inspection. 

Point  Involved:  If  a  seller  knows  of  a  defect  in  the 
thing  sold,  and  the  defect  is  of  a  character  not  ascertain- 
able by  the  buyer  on  reasonable  inspection,  is  the  seller's 
mere  silence  with  respect  to  such  defect  a  fraud  on  the 
buyer? 

Black,  J. :  "*  *  *  Caveat  emptor  is  the  general 
rule  of  the  common  law.  If  defects  in  the  property  sold 
are  patent  and  might  be  discovered  by  the  exercise  of 
ordinary  attention,  and  the  buyer  has  an  opportunity  tc 
inspect  the  property,  the  law  does  not  require  the  vendor 
to  point  out  defects.  But  there  are  cases  where  it  be- 
comes the  duty  of  the  seller  to  point  out  and  disclose 
latent  defects.  *  *  *  When  an  article  is  sold  for  a 
particular  purpose  the  suppression  of  a  fact  by  the 
vendor,  which  fact  makes  the  article  unfit  for  the  pur- 
pose for  which  it  was  sold,  is  a  deceit ;  and,  as  a  general 


58  CONTRACTS 

rule,  a  material  latent  defect  must  be  disclosed  when 
the  article  is  offered  for  sale,  or  the  sale  will  be  avoided. 
1  Whart.  on  Cont.,  sec.  248.  The  sale  of  animals  which 
the  seller  knows,  but  the  purchaser  does  not,  have  a  con- 
tagious disease,  should  be  regarded  as  a  fraud  when  the 
fact  of  the  disease  is  not  disclosed,  Cooley  on  Torts,  481. 
Kerr  says:  'Defects,  however,  which  are  latent,  or  cir- 
cumstances materially  affecting  the  subject  matter  of  a 
sale,  of  which  the  purchaser  has  no  means,  or  at  least 
has  no  equal  means  of  knowledge,  must,  if  known  to  the 
seller,  be  disclosed.'  Kerr  on  Fraud  and  Mis.  (Bump's 
ed.)  101.     *     *     * 

"There  is  no  claim  in  this  case  that  the  defendant 
knew  these  cattle  were  diseased.  It  seems  to  be  con- 
ceded on  all  hands  that  Texas  fever  is  a  disease  not 
easily  detected,  except  by  those  having  had  experience 
with  it.  The  cattle  were  sold  to  the  defendant  at  a  sound 
price.  If,  therefore,  plaintiff  knew  they  had  the  Texas 
fever,  or  any  other  disease  materially  affecting  their 
value  upon  the  market,  and  did  not  disclose  the  same  to 
the  defendant,  he  was  guilty  of  a  fraudulent  concealment 
of  a  latent  defect.  It  is  not  necessary  to  this  defense 
that  there  should  be  any  warranty  or  representations 
as  to  the  health  or  condition  of  the  cattle.  Indeed,  so 
far  as  the  case  is  concerned,  if  the  cattle  had  been  pro- 
nounced by  some  of  the  cattlemen  to  have  the  Texas 
fever,  and,  after  knowledge  of  that  report  came  to  plain- 
tiff, some  of  them  to  his  knowledge  died  from  sickness, 
then  he  should  have  disclosed  these  facts  to  the  defend- 
ant. They  are  circumstances  materially  affecting  the 
value  of  the  cattle  for  the  purposes  for  which  they  were 
bought,  or  for  any  other  purpose,  and  of  which  defend- 
ant, on  all  the  evidence,  had  no  equal  means  of  knowl- 
edge. 

"To  withhold  these  circumstances  was  a  deceit  in 
the  absence  of  proof  that  defendant  possessed  such  in- 
fo rmati  on." 

Question  37:  (1.)  State  the  facts,  the  question  presented  and 
the  decision  of  the  court  in  the  above  case. 


FRAUD  5& 

(2.)  A  offered  for  sale  a  mule  to  B,  and  B,  about  to  examine 
the  animal,  desisted  on  A's  statement  that  the  mule  would  kick, 
and  thereby  did  not  discover  lameness  and  malformation,  which 
the  examination  would  have  revealed.  A 's  statement  was  made  to 
prevent  B  's  inspection.  Was  there  fraud  ?  Kenner  v.  Harding, 
85  111.  264. 

Case  No.  38.     The  Clandeboye,  70  Fed.  631. 

Facts:    The  facts  are  stated  in  the  opinion. 

Question:  Whether  if  one  of  the  contracting  parties, 
having  from  his  superior  position,  knowledge  of  facts 
that  are  practically  inaccessible  to  the  other,  and  which 
materially  affect  the  contract,  merely  remains  silent  as 
to  such  facts  (making  no  misstatements  and  doing  noth- 
ing otherwise  to  conceal  such  facts,  or  otherwise  mislead- 
ing) he  is  by  his  mere  suppression  of  the  truth  guilty  of 
fraud. 

Seymour,  District  Judge  :  l '  The  material  facts  of  the 
case  are  as  follows:  The  Clandeboye,  a  large  and  val- 
uable British  steamer,  had  become  disabled  by  breakage 
of  machinery,  and  had  arrived  off  the  Little  Bahama 
Islands.  Her  mate  had  been  sent  by  a  ship's  boat  for 
assistance,  and  had  on  the  15th  of  May,  1894,  arrived  at 
Savannah.  In  pursuance  of  telegraphic  instructions 
cabled  to  him  by  the  owTners,  he  had  engaged  the  services 
of  the  Morse  of  New  York,  then,  however,  lying  at  the 
port  of  Philadelphia,  which  had  agreed  to  proceed  forth- 
with to  the  Little  Bahamas  and  tow  the  Clandeboye  to 
Vera  Cruz,  her  port  of  destination,  for  the  sum  of  $5,000. 
Leo  Lomm,  the  libellant,  part  owner  and  master  of  the 
tug  Dauntless,  lying  at  the  time  at  its  home  port  of 
Brunswick,  Ga.,  having  learned  from  the  Savannah 
papers  of  the  arrival  at  that  port  of  the  mate  of  the 
Clandeboye,  and  of  the  condition  and  location  of  that 
vessel,  on  the  17th  of  May  telegraphed,  through  his 
agents,  to  Savannah,  and  received  a  reply  stating  that 
the  tug  Morse  of  New  York  had  been  chartered  to  go  to 
the  assistance  of  the  Clandeboye.  The  distance  from 
New  York — and  that  from  Philadelphia  is  about  the 


60  CONTRACTS 

same — to  Stranger's  Cay,  where  the  Clandeboye  was 
lying,  is  more  than  1,000  miles.  From  Brunswick  the  dis- 
tance is  about  one-third  as  great.  Captain  Lomm's  boat 
was  lying  idle.  He  concluded  that  he  could  beat  the 
Morse  in  a  race  to  the  Clandeboye,  and  that,  the  master 
of  the  latter  not  knowing  of  tlje  employment  of  the 
Morse,  he  could  obtain  a  profitable  job  of  salvage.  The 
telegram  announcing  the  employment  of  the  Morse  by 
the  Clandeboye 's  owners  reached  Brunswick  at  a  little 
after  3  P.  M.  of  the  17th.  Shortly  after  dark  of  the 
same  day  the  Dauntless  started  for  the  Bahamas.  She 
arrived  at  Stranger's  Cay  before  noon  of  the  19th.  Her 
master  had  the  interview,  and  made  with  the  master  of 
the  Clandeboye  the  contract,  which  is  a  matter  in  litiga- 
tion, immediately  thereafter,  and  in  a  couple  of  hours 
the  vessels  left  for  Newport  News,  one  in  tow  of  the 
other.  Between  three  and  four  days  afterward  the 
Morse  reached  the  spot  where  the  Clandeboye  had  been 
lying  at  anchor,  to  find  that  she  had  gone.  The  conver- 
sation between  the  masters  of  the  steamer  and  of  the 
tug  at  Stranger's  Cay  contains  the  contract  entered  into 
between  them  and  the  words  that  led  up  to  it. 
The  material  facts  in  the  testimony  are  that  Captain 
Lomm  told  Captain  Strickland  of  the  arrival  of  his  mate 
in  Savannah,  but  did  not  tell  him  of  the  employment  of 
the  Morse  for  his  relief. 

"The  result  of  the  enterprise  of  Captain  Lomm  will 
be  disastrous  to  the  owners  of  the  Clandeboye  if  the 
decree  of  the  District  Court  is  allowed  to  stand.  Cap- 
tain Lomm  declined  to  take  the  Clandeboye  to  Vera  Cruz, 
the  port  to  which  her  cargo  was  consigned,  and  did  tow 
her  to  Newport  News,  where  she  was  repaired.  Fifteen 
hundred  tons  of  her  cargo  had  to  be  unloaded  and  then 
reloaded  before  she  proceeded  to  Vera  Cruz.  Her  owners 
were  compelled  to  pay  to  the  owners  of  the  Morse  the 
sum  of  $1,900  for  the  services  of  that  tug,  and  salvage 
compensation  amounting  to  $10,000— double  what  the 
Morse  had  agreed  to  charge  for  towing  the  Clandeboye 
to  Vera  Cruz — has  been  awarded  to  the  Dauntless.    But 


FRAUD  61 

the  master  of  the  steamship,  in  charge  of  his  vessel,  and 
not  in  communication  with  his  owners,  was  fully  em- 
powered to  contract  with  the  owners  of  the  Dauntless. 
The  contract  made  was  binding,  unless  invalidated  by 
the  conduct  of  Captain  Lomm  in  concealing  the  fact  that 
the  owners  of  the  Clandeboye  had  engaged  the  services 
of  the  Morse.     *     *     * 

"The  arrangement  entered  into  between  the  two 
masters  constituted  a  contract,  and  is  subject  to  the 
principles  which  regulate  the  validity  of  contracts.  If 
valid,  the  courts  of  admiralty  are  bound  to. enforce  it; 
if  not,  to  set  it  aside,  in  accordance  with  the  general 
rules  affecting  all  contracts.  The  law  of  contracts  re- 
quires of  the  parties  to  them  mutual  good  faith.  Is  there 
any  principle  of  mercantile  law  by  which  that  obliga- 
tion to  good  faith  which  required  Captain  Lomm  to  in- 
form Captain  Strickland  of  the  hiring  of  the  Morse  is 
relaxed,  and  is  not  of  so  stringent  a  force  as  to  make  the 
omission  fraudulent  ?  *  *  *  The  general  rule,  both  of 
law  and  equity,  in  respect  to  concealments,  is  that  mere 
silence  with  regard  to  a  material  fact  which  there  is  no 
obligation  to  divulge  will  not  avoid  a  contract.  Thus 
if  A,  knowing  that  there  is  a  mine  in  the  land  of  B,  of 
which  B  is  ignorant,  should  contract  to  purchase  the 
land  without  divulging  the  fact,  it  would  be  a  valid  con- 
tract, although  the  land  were  sold  at  a  price  which  it 
would  be  worth  without  the  mine,  because  A  is  under 
no  legal  obligation,  by  the  nature  of  the  contract,  to  give 
any  information  thereof.  Fox  v.  Macreth,  2  Brown,  Ch. 
400,  1  White  &  T.  Lead.  Cas.  eq.  *172.  *  Without  some 
such  general  rule  the  facilities  of  sale  would  be  greatly 
impeded,  and  there  would  be  no  security  to  the  vendor* 
or  to  the  vendee.     Story,  Cont.  P.  517. 

"It  will  be  noticed  that  the  general  rule  of  law  is  a 
requirement  of  good  faith  in  mutual  dealings,  and  that 
the  doctrine  of  caveat  emptor  is  an  exception  to  such 
requirement,  founded  upon  special  reasons,  viz.,  the  ne- 
cessities of  commerce,  and  the  impossibility  of  so  limiting 
any  other  doctrine  as  to  do  justice.     As  Chief  Justice 


62  CONTRACTS 

Marshall  says,  'it  would  be  difficult  to  circumscribe  the 
contrary  doctrine  within  proper  limits. '  The  necessities 
of  commerce  require  that  enterprise  should  be  encour- 
aged by  allowing  diligence  at  least  its  due  reward,  and 
not  interfering  with  any  proper  and  reasonably  fair  com- 
petition for  intelligence.  Any  other  course  would  set 
the  active  and  the  slothful  upon  an  equality.  'Vigilant- 
ibus  non  dormientibus  jura  subveniunt.' 

"Even  more  weighty  is  the  second  reason  given  in 
support  of  the  doctrine.  The  law  works  with  blunt  tools. 
Fallible  memories,  prejudiced  statements,  intentional 
falsehood,  the  bias  of  self-interest,  ignorance,  and  stupid- 
ity, are  all  concomitants  of  much  of  the  testimony  from 
which  she  has  to  make  up  her  judgments.  General  rules, 
applicable  to  the  majority  of  cases,  but  sometimes  hav- 
ing an  oppressive  bearing  upon  particular  ones,  make 
up  the  principles  upon  which,  of  necessity,  she  founds 
her  decisions,  for  the  law  must  be  workable.  It  must  be 
comprehensible  to  men  who  live  under  its  rule,  and  must 
not  be  so1  complex  as  to  overburden  the  memory  with 
minutiae.  Further,  were  it  open,  in  all  cases  of  con- 
tracts, for  a  dissatisfied  party  to  cry  off,  by  saying  that 
the  other  party  had  known  better  than  he  the  value  of 
the  subject-matter,  or  the  market  price,  or  some  other 
extrinsic  circumstance,  there  would  be  no  finality  in 
human  dealings,  and  the  only  limitation  to  the  litigation 
that  would  ensue  would  be  that  imposed  by  the  diminu- 
tion of  business  caused  by  such  want  of  finality  and  cer- 
tainty. 

"But  caveat  emptor  *  *  *  is  not  applied  (1)  to 
cases  of  active  fraud,  one  variety  of  which  consists  in 
misrepresentation  of  facts,  including  what  is  often  equiv- 
alent, partial  statements;  it  is  not  applied  (2)  to  cases 
in  which  trust  is  implied  by  reason  either  of  the  relations 
to  one  another  of  the  parties,  or  the  nature  of  the  con- 
tract; nor  (3)  to  cases  in  which,  in  the  absence  of  laches 
in  the  party  injured,  the  persons  dealing  with  one  an- 
other do  not  deal  upon  mutually  equal  terms,  by  reason 


FRAUD  63 

of  there  being  special  knowledge  in  the  possession  of 
one  party  which  is  inaccessible  to  the  other. 

(1.)  The  case  of  actual  or  implied  misrepresentation 
needs  no  illustration. 

(2.)  That  of  trust  includes  all  the  known  fiduciary 
relations, — such  as  those  of  attorney  and  client,  guar- 
dian and  ward,  agent  and  principal,  and  generally  of 
all  who  stand  in  the  relation  of  trustee  and  cestui  que 
trust.  It  also  includes  dealings  with  regard  to  all  mat- 
ters which  from  their  nature  demand  mutual  confidence. 
#     *     # 

(3.)  The  case  of  information  possessed  by  one  party 
and  absolutely  unobtainable  by  the  other,  though  of  rarer 
occurrence,  is  one  in  which  the  enforcement  of  the  rule 
of  good  faith  is  fully  as  imperative  as  it  is  in  the  two 
classes  of  cases  first  mentioned.  It  is  perhaps  not  prop- 
erly an  exception  to  the  doctrine  of  caveat  emptor,  but 
rather  a  case  outside  of  its  terms.  The  purchaser  can- 
not look  out  for  what  he  cannot  have  knowledge  of. 

"The  case  at  bar  is  the  first  of  the  kind  that  has  come 
before  a  court  of  admiralty,  but  it  is  as  striking  a  one 
as  could  be  imagined  or  invented.  It  is  one  in  which 
one  party  to  the  bargain  has  knowledge  of  a  fact  which, 
if  known  to  the  other,  would  have  prevented  the  making 
of  the  contract.  The  ignorance  of  the  fact  on  the  part 
of  the  second  party  is  one  which  cannot  be  made  a  sub- 
ject of  controversy,  and  this  ignorance  was  known  to 
the  party  suing  upon  the  contract.  To  give  him  the 
benefit  of  it,  to  the  injury  of  the  claimants,  would  be,  in 
our  opinion,  a  startling  violation  of  the  fundamental 
principle  of  all  law,  that  equity  is  equality.  We  think 
that  the  agreement  between  the  masters  of  the  two  ves- 
sels, made  in  the  case  at  bar,  is  infected  with  all  three 
of  the  vices  stated,  and  is,  therefore,  not  within  the  doc- 
trine of  caveat  emptor.  It  must,  therefore,  be  declared 
void  under  the  principle  that  requires  good  faith  in 
mutual  dealings. 

"  (1.)     Without  placing  as  much  stress  upon  the  point 


64  CONTRACTS 

as  upon  the  other  two,  we  yet  think  it  may  be  fairly  held 
that  in  telling  a  part,  but  not  the  whole,  of  the  truth  to 
Captain  Strickland,  Captain  Lomm  was  guilty  of  that 
suppressio  veri  which  the  law  calls  fraud.     *     * 

"  (2.)  The  relation  of  salvor  and  saved,  while  not  one 
of  the  fiduciary  relations  generally  referred  to  in  the  law 
books,  and  accurately  defined,  as  well  as  classified,  is 
yet  a  fiduciary  one.     *     *     * 

"(3.)  Were  the  other  reasons  of  declaring  the  con- 
tract void  absent,  we  should  unhesitatingly  do  so  on  the 
third  ground,  viz.,  because  the  parties  were  not  dealing 
on  terms  of  equality.  There  was  on  the  part  of  Captain 
Lomm  an  intentional  suppression  of  a  material  fact,  in 
relation  to  which  he  was  informed,  while  Captain  Strick- 
land had  not  access  to  any  means  of  obtaining  informa- 
tion of  it.  Looking  at  the  position  of  the  two  parties  to 
the  bargain  from  another  point  of  view,  there  appears 
to  have  been  a  striking  inequality  between  them.  The 
master  of  the  Clandeboye  had,  when  the  Dauntless  ar- 
rived at  Stranger 's  Cay,  been  for  nearly  four  weeks  in  a 
disabled  vessel.  He  had  lain  helpless  at  his  anchorage 
for  eleven  days.  His  only  assistant,  who  was  a  navigator 
(the  mate  of  the  vessel),  was  absent,  and  he  was  alone  in 
authority  over  the  Clandeboye.  He  was  suffering  from 
the  pressure  of  anxiety,  responsibility  and  delay.  The 
master  of  the.  Dauntless,  aware  of  all  the  circumstances, 
intent  solely  upon  gain,  fresh  from  home,  with  a  mind 
disengaged  and  at  ease,  had  an  unfair  advantage  over 
him.  In  the  short  period  during  which  he  considered 
and  agreed  to  accept  the  services  proffered  to  him,  Cap- 
tain Strickland  can  hardly  be  supposed  to  have  had  the 
time  or  grasp  of  the  facts  that  would  have  enabled  him 
to  have  drawn  all  the  inferences  from  the  fact  of  his 
mate's  opportunities  in  Savannah  that  have  been  imag- 
ined by  counsel.  During  that  hurried  interview  between 
the  masters  of  the  two  vessels,  it  doubtless  confusedly 
occurred  to  the  master  of  the  Clandeboye  that  his  mate 
was  trying  to  do  something  for  him,  and  that  tugs  would 
be  at  hand  in  a  short  time,  prepared  to  tow  him  some- 


DURESS  65 

where.  Probably  he  thought  of  the  nearest  ports.  His 
conversation  shows  that  thoughts  of  this  kind  were  in  his 
mind.  He  was  anxious  to  get  away,  and  with  the  words 
'first  come,  first  served,'  he  made  terms  with  Captain 
Lomm,  whose  tug  had  arrived  first.  But  it  would  be  un- 
just to  suppose  that  he  expected  or  had  in  his  mind  any 
thought  of  the  possible  existence  of  what  was  actually 
the  fact,  viz.,  a  contract  under  which  a  powerful  tug  had 
been  employed  by  his  owners  to  tow  him  to  the  place  to 
which  he  desired  to  be  taken  (Vera  Cruz),  and  was  al- 
ready on  the  way  to  Stranger's  Cay,  near  the  Little  Ba- 
hamas, where  he  was  lying.  We  see  no  reason  to  doubt 
his  statement  that,  if  he  had  known  of  the  employment 
of  the  Morse,  he  would  not  have  employed  the  Dauntless. 
The  parties  were  not  dealing  on  equal  terms,  and  their 
contract  cannot  be  enforced.     *     *     *" 

Question  38:  (1.)  State  the  facts  in  the  above  case,  and 
what  the  court  decided. 

(2.)  What  did  the  court  say  is  the  general  rule  with  respect 
to  concealment  of  a  material  fact  as  constituting  fraud? 

(3.)  What  reason  did  the  court  give  for  the  doctrine  of 
caveat  emptor? 

(4.)  If  A,  knowing  that  there  is  a  mine  in  the  land  of  B  of 
which  he  knows  B  to  be  ignorant,  and  should  contract  with  B 
for  the  purchase  of  the  land  at  a  price  that  is  merely  the  value 
of  the  land  without  the  mine,  would  the  contract  be  valid? 
How  would  you  distinguish  such  a  case  from  the  case  of  the 
Clandeboye?  How  would  you  distinguish  it  from  the  case  of 
the  cattle  with  "Texas  fever?" 

(5.)  What  three  classes  of  cases  did  the  court  say  are  not 
within  the  rule  of  caveat  emptor?        r 

Sec.  31.    Duress. 

Case  No.  39.  Galusha  v.  Snerman,  81  N.  W.  (Wis.) 
495. 

Point  Involved:  What  is  meant  by  the  term  duress? 
What  tests  have  been  applied? 

Marshall,  J.: "•    *    *    It  (duress)  is  a  branch  of  the 


66  CONTRACTS 

law,  that,  in  the  process  of  development  from  the  rigorous 
and  harsh  rules  of  the  ancient  common  law,  has  been  so 
softened  by  the  more  humane  principles  of  the  civil  law, 
and  of  equity,  that  the  teachings  of  the  older  writers  on 
the  subject,  standing  alone,  are  not  proper  guides.  The 
change  from  the  ancient  doctrine  has  been  much  greater 
in  some  jurisdictions  than  in  others.  There  are  many 
adjudications,  based  on  citations  of  authorities  not  in 
themselves  harmonious,  and  many  statements  in  legal 
opinions  based  on  the  ancient  theory  of  duress,  which  to- 
gether create  much  confusion  on  the  subject,  not  only 
as  it  is  treated  by  text  writers,  but  by  judges  in  legal 
opinions. 

"Anciently,  duress  in  law  by  putting  in  fear  could  exist 
only  where  there  was  such  a  threat  of  danger  to  the  ob- 
ject of  it  as  was  deemed  sufficient  to  deprive  a  constant 
or  courageous  man  of  his  free  will,  and  the  circumstances 

requisite  to  that  condition  were  distinctly  fixed  by  law; 

#     *     * 

"Early  in  the  development  of  the  law,  the  legal  stand- 
ard of  resistance  that  a  person  was  bound  to  exercise 
for  his  own  protection  was  changed  from  that  of  a  con- 
stant or  courageous  man  to  that  of  a  person  of  ordinary 
firmness.     *     *     * 

"Duress,  in  its  broad  sense,  now  includes  all  instances 
where  a  condition  of  mind  of  a  person  caused  by  fear  of 
personal  injury  or  loss  of  limb,  or  injury  to  such  per- 
son's property,  wife,  child,  or  husband,  is  produced  by 
the  wrongful  conduct  of  another  rendering  such  person 
incompetent  to  contract  with  the  exercise  of  his  free  will 
power,  whether  formerly  relievable  at  law  on  the  ground 
of  duress  or  in  equity  on  the  ground  of  unlawful 
compulsion. 

"The  true  doctrine  of -duress,  at  the  present  day,  both 
in  this  country,  and  England,  is  that  a  contract  obtained 
by  so  oppressing  a  person  by  threats  regarding  his  per- 
sonal safety  or  liberty,  or  that  of  his  property,  or  of  a 
member  of  his  family,  as  to  deprive  him  of  the  free  exer- 
cise of  his  will  and  prevent  the  meeting  of  minds  neces- 


DURESS  67 

sary  to  a  valid  contract,  may  be  avoided  on  the  ground 
of  duress,  whether  the  oppression  causing  the  incom- 
petence to  contract  be  produced  by  what  was  deemed 
duress  formerly,  and  relievable  at  law  as  such,  or  wrong- 
ful compulsion  remediable  by  an  appeal  to  a  court  of 
equity.  The  law  no  longer  allows  a  person  to  enjoy, 
without  disturbance,  the  fruits  of  his  iniquity,  because 
his  victim  was  not  a  person  of  ordinary  courage ;  and  no 
longer  gauges  the  acts  that  shall  be  held  legally  sufficient 
to  produce  duress  by  any  arbitrary  standard,  but  holds 
him,  who,  by  putting  another  in  fear,  shall  have  produced 
in  him  a  state  of  mental  incompetency  to  contract,  and 
then  takes  advantage  of  such  condition,  no  matter  by 
what  means  such  fear  be  caused,  liable  at  the  option  of 
such  other  to  make  restitution  to  him  of  everything  of 
value  thereby  taken  from  him.     *     *     *" 

Question  39:     (1.)     Define  duress;  (2.)  "What  was  the  ancient 
test,  the  later  test  and  present  day  test  of  duress  ? 
(3.)     What  effect  has  duress  upon  a  contract? 

Case  No.  40.  International  Harvester  Co.  v.  Voboril, 
187  Fed.  973. 

Facts:  The  Harvester  Company  sued  Anna  Voboril 
on  her  promissory  notes  which  were-  given  by  her  to  pay 
the  debts  of  her  husband.  Her  defense  was  that  her  sig- 
nature was  obtained  through  threats  by  representatives 
of  the  Company,  that,  unless  she  signed,  her  husband 
would  be  arrested  and  imprisoned.  It  was  contended 
that  even  if  these  threats  were  made,  they  would  con- 
stitute no  duress,  because  the  husband  had  committed 
no  crime  for  which  he  could  be  arrested.  It  appeared 
that  Mrs.  Voboril  was  an  ignorant  foreigner,  the  mother 
of  seven  children,  and  at  the  time  pregnant  with  an  eighth. 

Point  Involved:  Whether  a  mere  threat  to  arrest  a 
near  relative  who  has  committed  no  crime  can  constitute 
duress  if  as  a  matter  of  fact  the  contracting  party  was, 
owing  to  the  circumstances,  peculiarly  susceptible  to  fear 
in  that  regard. 


68  CONTRACTS 

Hook,  Circuit  Judge:  "*  *  *  It  is  contended,  *  *  *, 
that  even  if  the  threats  were  made  they  could  not  in  law 
have  caused  duress,  because  defendant's  husband  had 
committed  no  offense,  there  was  no  officer  present  to  make 
the  arrest,  and  no  warrant  had  been  issued  or  proceed- 
ing commenced  against  him.  The  contention  is  unten- 
able. Duress  may  be  caused  by  threats  of  a  criminal 
prosecution  of  a  husband,  wife,  child,  or  other  near  rela- 
tive of  the  person  whose  action  is  thereby  controlled, 
though  no  crime  has  in  fact  been  committed  or  prosecu- 
tion begun.  If  the  contracting  party  has  been  so  put  in 
fear  as  to  be  deprived  of  the  free  will  power  essential  to 
contractual  capacity,  the  transaction  thereby  induced  may 
be  avoided.  A  valid  contract  implies  mutual  voluntary 
assent  of  the  parties ;  and  if  one  of  them  overcomes  the 
mind  and  will  of  the  other  by  moral  compulsion,  and  so 
obtains  his  concurrence,  though  the  form  and  shell  of  a 
contract  exist  the  very  essence  of  it  is  wanting. 

"Susceptibility  to  coercive  influence  is  not  uniform, 
and,  in  determining  the  question  of  duress,  sex,  age,  state 
of  health,  family  conditions,  etc.,  may  be  considered  with 
the  other  circumstances.  In  the  case  at  bar  the  plaintiff 
had  no  claim  against  the  defendant.  The  debtor  was  her 
husband,  who  had  failed  in  business.  Primarily  she  was 
neither  legally  nor  morally  responsible.  The  representa- 
tives of  the  plaintiff  sought  to  obtain  her  guaranty  of  his 
obligations  and  to  bind  her  separate  estate  for  their  pay- 
ment. She  was  of  Bohemian  extraction  and  apparently 
ignorant  of  business  affairs.  She  was  the  mother  of 
seven  children,  the  eldest  of  whom  was  14  years  of  age, 
and  was  pregnant  with  an  eighth.  We  must  assume  from 
the  verdict  and  evidence  that  threats  were  made  to  have 
her  husband  arrested  and  jailed  unless  she  signed  and 
guaranteed  the  notes,  and  we  cannot  say  as  matter  of  law 
they  were  insufficient  under  the  circumstances  to  deprive 
her  of  that  freedom  of  will  essential  to  voluntary  action. 
All  men  appreciate  how  susceptible  the  mind  of  a  wife 
and  mother  is  to  such  influence,  and  how  she  may  be 
coerced  to  give  up  her  property  when  the  liberty  of  hus- 


UNDUE  INFLUENCE  69 

band  and  father  is  believed  to  be  at  stake.  It  should  be 
mentioned  in  this  connection  that  the  court  excluded 
some  of  the  testimony  as  to  the  condition  of  defendant 
and  the  state  she  was  put  in  by  the  threats,  which  should 
have  been  admitted.  It  bore  upon  the  vital  feature  of 
the  defense." 

Question  40:  (1.)  State  the  facts  and  the  decision  of  the 
court  in  the  above  case. 

(2.)  Suppqse  the  maker  of  the  notes  in  the  above  case  were 
an  experienced  business  man,  who  signed  the  notes  to  pay  his 
son 's  debts  upon  the  threat  that  unless  he  signed,  the  son  would 
be  arrested,  the  son  having  committed  no  crime.  Would  your 
answer  be  the  same  ? 

(3.)  Suppose  in  the  case  just  put  the  son  had  committed  a 
crime  and  he  were  threatened  with  arrest  unless  the  father 
signed  the  notes.    Would  your  answer  be  the  same  ? 

(Note :  Answer  to  (3)  above :  In  the  case  put,  the  courts  differ, 
but  the  better  rule  is  that  to  threaten  to  arrest  a  near  relative 
for  a  crime  committed  may  be  duress.  Shattuck  v.  Watson,  53 
Ark.  147.  It  may  be  duress  to  threaten  one  with  arrest  for  the 
purpose  of  coercing  him  into  a  contract ;  but  if  the  threat  is  made 
bona  fide,  and  a  contract  thereby  secured,  the  courts  differ.) 

Sec.  32.    Undue  Influence. 

Case  No.  41.    Mors  v.  Peterson,  261  111.  532. 

Facts:  Sarah  Mors  and  others,  as  heirs  and  devisees 
of  Mrs.  Elizabeth  Spruill,  deceased,  file  their  bill  against 
Clarissa  Peterson  to  set  aside  a  deed  executed  by 
Mrs.  Spruill  to  Clarissa  Peterson,  August  23,  1911,  con- 
veying to  her  190  acres  |0f  land  estimated  to  be  worth  $50 
per  acre.  The  bill  alleged  that  fraud,  and  undue  influ- 
ence was  practiced  on  Mrs.  Spruill,  as  well  as  her  mental 
incapacity,  as  grounds  for  relief.  Mrs.  Spruill  died  April 
23,  1912,  aged  80  years.  Her  husband  had  been  dead 
20  years  and  she  never  had  any  children.  During 
the  last  10  years  of  her  life  Mrs.  Spruill  lived  at  the  home 
of  the  defendant,  Clarissa  Peterson,  who  was  her  niece, 
and  paid  her  for  keeping  her.    During  the  last  years  of 


70  CONTRACTS 

her  life  she  gradually  declined  and  required  constant  at- 
tention which  was  rendered  by  Miss  Peterson  who  also 
toward  the  last  took  charge  of  all  of  Mrs.  SpruilPs  busi- 
ness generally.  Just  before  the  death  of  Mrs.  Spruill, 
Miss  Peterson  called  up  an  attorney  and  had  him  pre- 
pare a  deed,  which  was  then  signed.  Other  facts  appear 
in  the  opinion. 

Point  Involved:  The  nature  of  undue  influence.  Under 
what  circumstances  it  will  be  presumed;  what  evidence 
required  to  overcome  the  presumption  when  entertained  ? 

Mr.  Justice  Vickees : "  *  *  *  The  evidence  as  to  the 
mental  condition  of  Mrs.  Spruill  during  the  last  few  years 
of  her  life  is  conflicting.  It  can  not  be  said  that  the  weight 
of  the  evidence  shows  that  her  mental  powers  were  more 
impaired  than  would  ordinarily  be  expected  in  one  of  her 
age  and  condition  of  health.  The  evidence  on  this  point 
shows  that  she  had  the  physical  and  mental  weakness 
that  are  usually  incident  to  old  age.  Her  mental  condi- 
tion is  proper  to  be  considered  as  strengthening  the  in- 
ference of  undue  influence  which  the  law  draws  from  an 
established  fiduciary  relation.  The  constant  and  intimate 
association  of  appellant  with  this  feeble  and  helpless  old 
lady  for  the  last  ten  years  of  her  life  gives  rise  to  an  ir- 
resistible conclusion  that  there  was  trust  and  confidence 
on  the  one  hand  and  influence  and  domination  on  the 
other.  While  the  bill  sets  out  all  the  circumstances  con- 
nected with  the  execution  of  the  deed  and  alleges  undue 
influence  and  mental  incapacity  and  prays  for  a  cancella- 
tion of  the  deed,  it  is  not,  strictly  speaking,  a  bill,  as  ap- 
pellants counsel  appear  to  treat  it,  for  the  rescission  of 
a  contract  on  the  ground  of  mental  incapacity  of  the  party 
to  enter  into  it.  The  bill  alleges  a  state  of  facts  which  are 
fully  established  by  the  proof,  which  show  that  a  fiduciary 
relation  existed  between  these  parties ;  that  while  such  re- 
lation existed  the  deed  in  question  was  executed  without 
any  adequate  consideration ;  that  by  said  deed  appellant 
acquired  title  to  real  estate  worth  between  $9,000  and 
$10,000,  and  the  bill  calls  on  the  appellant  to  rebut  the 
presumption  which  the  law  draws  from  the  fiduciary  re- 


UNDUE  INFLUENCE  71 

lation  established,  and  show,  by  clear  and  convincing 
proof,  that  she  acted  with  good  faith  and  did  not  betray 
the  confidence  reposed  in  her.  The  decree  below  can- 
celing this  deed  is  merely  an  adjudication  that  appellant 
has  wholly  failed  to  remove  the  suspicions  which  neces- 
sarily grow  out  of  the  nature  of  the  transaction  and  the 
relation  of  the  parties. 

"Courts  of  equity  have  refused  to  set  any  bounds  to 
the  circumstances  out  of  which  a  fiduciary  relation  may 
spring.  It  not  only  includes  all  legal  relations,  such  as 
guardian  and  ward,  attorney  and  client,  principal  and 
agent,  and  the  like,  but  it  extends  to  every  possible  case 
in  which  a  fiduciary  relation  exists  in  fact,  and  in  which 
there  is  confidence  reposed  on  one  side  and  resulting 
domination  and  influence  on  the  other.  (Beach  v.  Wil- 
ton, 244  111.  413.)  It  is  not  necessary  that  the  relation 
and  duties  involved  be  legal.  They  may  be  either  moral, 
social,  domestic,  or  merely  personal.  (Roby  v.  Colehour, 
135  111.  300;  Walker  v.  Shepard,  210  id.  100.)  When  a 
confidential  or  fiduciary  relation  is  established  between 
parties,  courts  of  equity  scrutinize  very  closely  any  trans- 
action or  contract  between  the  parties  by  which  the  dom- 
inant party  secures  any  profit  or  advantage  at  the  ex- 
pense of  the  person  under  his  influence.  All  transactions 
between  parties  in  this  relation  are  presumptively  fraud- 
ulent and  void,  and  before  a  court  of  equity  will  permit 
such  contract  to  stand,  the  proof  must  be  clear  and  con- 
vincing and  satisfy  the  conscience  of  the  chancellor  that 
good  faith  has  been  exercised  and  that  the  confidence  re- 
posed in  the  beneficiary  of  the  contract  has  not  been 
betrayed  by  him.  Beach  v.  Wilton,  supra,  and  authorities 
there  cited. 

"The  circumstances  connected  with  the  execution  of 
the  deed  in  question,  as  disclosed  by  the  evidence,  are : 
Appellant  called  upon  an  attorney  and  had  him  prepare 
a  deed.  After  having  the  deed  written  up,  the  appellant 
telephoned  Sidney  Bagley  and  asked  him  to  come  over 
to  the  house.  Bagley  was  a  justice  of  the  peace.  He  went 
to  appellant's  house  and  after  consulting  with  appellant 


72  CONTRACTS 

a  notary  public  was  called.  The  matter  of  executing  the 
deed  was  discussed  by  appellant,  Bagley  and  the  notary 
public.  The  deceased  was  in  another  room.  After  the 
matter  had  been  talked  over  among  the  three  parties 
Bagley  entered  the  sickroom  where  the  old  lady  was  and 
presented  the  deed  to  her  and  she  made  her  mark,  and 
thereupon  Bagley  placed  a  silver  dollar  in  her  hand, 
which  had  been  given  him  a  few  minutes  before  by  appel- 
lant. J.  E.  Keisling,  the  notary  public,  says  that  after 
the  deed  was  executed  it  was  read  over  to  Mrs.  Spruill, 
and  Bagley  says  that  he  asked  her,  before  she  made  her 
mark  to  the  deed,  if  she  wanted  to  give  the  land,  or  deed 
the  land,  to  appellant,  and  was  answered,  'Yes.'  There- 
upon the  notary  added  his  certificate  of  acknowledgment 
and  the  deed  was  handed  to  appellant.  Before  the  exe- 
cution of  this  deed  Mrs.  Spruill  had  made  a  will  in  which 
she  disposed  of  all  her  property,  including  the  land  in 
controversy.  By  her  will  appellant  was  given  ll/20ths 
of  the  estate  and  the  balance  was  disposed  of  among 
other  relatives.    - 

"When  all  of  the  circumstances  surrounding  this  trans- 
action are  considered  we  can  come  to  no  other  conclu- 
sion than  that  reached  by  the  court  below,  that  there  was 
here  an  unusually  intimate  fiduciary  relation  existing  be- 
tween these  parties,  and  that  the  conveyance  to  appellant 
of  substantially  all  of  the  property  that  the  deceased 
owned  must  be  held  to  be  the  result  of  a  violation  of  the 
confidence  and  trust  reposed  by  this  old  lady  in  appel- 
lant. At  all  events,  the  evidence  introduced  on  behalf 
of  appellant  fails  to  convince  us,  any  more  than  it  did  the 
chancellor  below,  that  this  transaction  is  free  from  any 
suspicion  of  undue  influence. 

"The  deed  contains  a  covenant  on  the  part  of  appellant 
that  she  would  take  care  of  Mrs.  Spruill  as  long  as  she 
lived  and  provide  her  with  a  good  home,  board,  food,  shel- 
ter and  care  during  her  life.  Appellant  contends  that 
even  though  the  court  properly  set  aside  the  deed  it  was 
error  to  set  it  aside  unconditionally,  without  requiring 
the  payment  to  appellant  of  reasonable  compensation 


DISAFFIRMANCE  73 

for  taking  care  of  the  old  lady  from  the  time  the  deed  was 
executed  until  her  death.  The  evidence  shows  that  not- 
withstanding this  covenant  in  the  deed  appellant  contin- 
ued to  demand  of  Brown  compensation  for  taking  care  of 
the  old  lady  at  the  rate  of  $10  per  week  under  her  con- 
tract. Numerous  letters  written  by  appellant  to  Brown 
demanding  money  are  in  the  record.  The  last  of  these 
was  about  two  weeks  before  the  death  of  Mrs.  Spruill. 
This  evidence  shows  that  appellant  was  .relying  on  her 
contract  for  compensation  for  taking  care  of  the  deceased, 
and  that  she  did  not  furnish  her  a  home,  board,  food  and 
shelter  as  a  consideration  for  the  conveyance.  If  appel- 
lant has  any  claim  against  the  estate,  under  her  contract 
with  Brown,  for  compensation  she  has  not  been  deprived 
of  that  by  the  decree  in  this  case.  There  was  no  error  in 
the  decree  in  this  respect. 

1 '  There  being  no  error  in  the  decree  of  the  circuit  court 
of  Fayette  county  it  will  be  affirmed. — Decree  affirmed." 

Question  41 :  Enumerate  the  relationships  stated  in  the  above 
ease  in  which  undue  influence  will  be  presumed.  In  case  of  a 
presumption  of  undue  influence,  may  the  contract  still  stand  not- 
withstanding such  presumption?    How? 

Sec.  33.    Conditions    of    Disaffirmance    of    Contracts 
Voidable  for  Fraud,  Etc. 

Case  No.  42.     Tarkington  v.  Purvis,  128  Ind.  182. 

Facts:  On  August  15,  1887,  Jos.  S.  Tarkington,  ex- 
changed his  interest  in  the  firm  of  T.  H.  Ellis  &  Co., 
hardware  dealers,  for  certain  real  estate  and  $600  in  cash, 
with  Sanford  B.  Purvis,  who  agreed  to  pay  Tarkington 's 
share  of  the  firm's  indebtedness.  Tarkington  falsely 
represented  that  the  assets  of  the  firm  were  largely  in 
excess  of  its  liabilities.  As  a  matter  of  fact,  the  reverse 
was  true,  so  that  Tarkington  's  interest  was  of  no  value 
whatever.  On  August  27th  Purvis  discovered  the  fraud 
practiced  upon  him  and  immediately  demanded  rescission, 


74  CONTRACTS 

tendering  back  all  he  had  received.  On  August  30,  Pur- 
vis received  $341  in  cash  out  of  proceeds  arising  from  a 
sale  of  some  of  the  assets  of  the  firm,  such  sale  being 
evidently  made  to  prevent  waste  of  the  assets.  On  Sep- 
tember 1st,  he  again  demanded  rescission,  offering  also 
this  $341  collected  by  him.  It  is  contended  that  in  deal- 
ing with  the  partnership  property  in  the  manner  shown 
the  plaintiff  ratified  the  contract. 

Point  Involved:  What  facts  constitute  ratification  of 
a  fraudulent  contract?  Dealing  with  the  subject  matter 
as  ratification. 

Mitchell,  J. : ' '  The  doctrine  is  fully  established  that  a 
contract  induced  by  fraud  is  only  voidable,  and  if  one  who 
has  been  defrauded  after  discovering  the  deceit  acquiesces 
in  the  sale  either  by  express  words  or  by  any  unequivo- 
cal act,  such  as  treating  the  property  as  his  own,  with  an 
intent  to  condone  the  fraud,  he  will  be  deemed  to  have 
elected  to  affirm  the  contract,  and  he  cannot  afterwards 
rescind.  One  who,  uninfluenced  by  the  fraud,  deals  with 
the  property  as  his  own,  after  having  fully  discovered 
that  fraud  has  been  practiced  upon  him  in  the  contract 
or  transaction  by  or  through  which  he  acquired  the  prop- 
erty, thereby  waives  his  right  to  rescind.  St.  John  v. 
Hendrickson,  81  Ind.  350;  Higham  v.  Harris,  108  Ind. 
246,  5  West.  Rep.  643;  Worley  v.  Moore,  97  Ind.  15;  Do- 
herty  v.  Bell,  55  Ind.  205;  Gatling  v.  Newell,  9  Ind.  572; 
Comparet  v.  Hedges,  6  Blackf .  416 ;  Shaeffer  v.  Sleade,  7 
Blackf.  179;  Benjamin,  Sales,  sec.  675. 

"Equivocal  acts,  however,  which  do  not  clearly  evince 
a  purpose,  with  complete  knowledge  of  the  fraud,  to 
retain  the  property  as  his  own,  will  not  defeat  the  right 
of  the  person  defrauded  to  rescind.  The  act  must  be 
unequivocal  and  must  show  an  election  to  retain  the  prop- 
erty, after  discovering  the  deceit,  before  the  right  to 
rescind  is  gone. 

"In  the  present  case  the  right  to  claim  a  rescission  had 
been  fully  perfected  by  the  appellee,  by  tendering  back 
everything  that  had  been  received,  and  by  offering  to 
place  the  fraudulent  vendor  in  statu  quo.    That  the  plain- 


DISAFFIRMANCE  75 

tiff  below  afterwards  received  money  arising  from  the 
sale  of  some  of  the  assets  of  the  firm  in  no  way  militates 
against  his  right  to  compel  the  rescission  since  it  does 
not  appear  that  the  property  was  sold  in  the  course  of 
the  business  of  the  firm,  and  the  money  received  was 
fully  accounted  for  without  loss  to  the  appellant.  One 
who  has  perfected  his  right  to  rescind  a  fraudulent  con- 
tract cannot  lose  it  by  merely  taking  care  of  the  property 
received,  or  by  preserving  it  in  case  it  is  of  a  perishable 
nature,  unless  what  he  does  is  done  with  the  intent  to 
confirm  the  contract.  He  is  not  bound  to  preserve  per- 
ishable property,  but  if  he  acts  in  good  faith  in  preventing 
reasonable  apprehended  loss  or  destruction  and  waste  of 
the  property,  his  perfected  right  of  rescission  will  not  be 
lost  in  a  court  of  equity,  if  he  fairly  accounts  for  the 
property  without  loss  to  the  vendor,  and  places  him  in 
statu  quo  as  nearly  as  may  be.  Pierce  v.  Wilson,  34  Ala. 
596;  Neblett  v.  Macfarland,  92  U.  S.  101  (23  L.  ed.  471) ; 
Wharton,  Cont.  sec.  285. 

"  Where  subsequent  acts  are  relied  upon  as  a  defense 
in  a  case  where  fraud  is  clearly  established,  it  is  said  the 
act  must  stand  upon  the  clearest  evidence,  and  must 
evince  a  purpose  to  waive  or  forgive  the  fraud,  and  must 
amount  to  a  clear  election  not  to  rescind.  If  what  is  done 
is  merely  for  the  purpose  of  saving  the  plaintiff  from  fur- 
ther loss,  without  any  purpose  to  give  up  whatever  right 
he  may  have  either  at  law  or  in  equity  to  rescind,  the 
right  or  rescission  will  not  be  affected.  Montgomery  v. 
Pickering,  116  Mass.  227;  Morse  v.  Eoyal,  12  Ves.  Jr. 
355-373.'  > 

Question  42:  State  the  rule  of  this  case.  Show  why  the  acts 
of  the  defrauded  party  in  this  case  were  not  a  ratification  of  the 
contract. 

(Note :  A  party  who  desires  to  rescind  a  voidable  contract  may 
be  barred  by  his  mere  delay.  He  must  act  with  reasonable  dili- 
gence where  from  all  the  circumstances  he  would  reasonably  be 
deemed  by  the  other  to  have  waived  the  ground  on  which  he 
might  avoid.    What  constitutes  reasonable  diligence  depends  on 


76  CONTRACTS 

the  circumstances.  In  Burwash  v.  Ballon,  230  111.  34,  where 
the  suit  was  to  rescind  a  sale  of  mining  stock,  the  court  said : 

11  •  *  *  The  rule  is  that  a  party  who  desires  to  rescind  a 
sale  for  fraud  must  act  promptly ;  that  he  cannot  be  permitted  to 
stand  passively  by  and  speculate  as  to  the  result  of  an  invest- 
ment in  mining  stock,  which  usually  fluctuates  in  value,  and 
after  the  future  has  disclosed  his  investment  was  a  mistake, 
rescind  the  contract  of  purchase  for  fraud  and  recover  back  the 
consideration  paid  for  the  stock    *     *     *" 

For  a  case  discussing  the  duty  to  be  diligent  in  rescinding,  and 
conduct  amounting  to  affirmation,  see  Case  No.  184,  post. 

It  is  also  necessary  that  a  party  seeking  rescission  place  or 
offer  to  place  the  other  in  statu  quo  where  that  is  possible.  He 
must  tender  back  what  he  has  received  under  the  contract.) 


CHAPTER   FOUR 
CONSIDERATION 

A.  Theory  and  nature  of  considera-       B.  Examples  of  consideration, 
tion. 

A.    Theory  and  Nature  of  Consideration. 

§  34.  Consideration  defined.  §  35.  Adequacy  of  consideration. 

Sec.  34.    Consideration  Defined.     Necessary  in  Simple 

Contracts. 

Case  No.  43.  Eann  v.  Hughes,  7  Term  Rep.  (Eng- 
land) 346. 

Facts:  Suit  against  an  administratrix  upon  a  written 
unsealed  promise  on  her  part  to  pay  a  debt  of  the 
deceased. 

Point  Involved:  Whether  a  written,  unsealed  promise 
to  pay  the  debt  of  another,  not  induced  by  some  act  or 
promise,  is  of  a  contractual  character,  i.  e.,  whether  a 
simple  contract  is  enforcible  without  consideration. 

Lord  Chief  Baron  Skinner:  "*  *  *  It  is  undoubt- 
edly true  that  every  man  is  by  the  law  of  nature  bound 
to  fulfill  his  engagements.  It  is  equally  true  that  the  law 
of  this  country  supplies  no  means,  nor  affords  any  rem- 
edy, to  compel  the  performance  of  an  agreement  made 
without  sufficient  consideration;  such  agreement  is 
nudum  pactum  ex  quo  non  oritur  actio;  and  whatsoever 
may  be  the  maxim  in  the  civil  law,  it  is  in  the  last  men- 
tioned sense  only  that  it  is  to  be  understood  in  our  law. 


77 


78  CONTRACTS 

''All  contracts  are  by  the  law  of  England  distinguished 
into  agreements  by  specialty,  and  agreements  of  parol; 
nor  is  there  any  such  third  class  as  counsel  have  endeav- 
ored to  maintain  as  contracts  in  writing.  If  they  be 
merely  written  and  not  specialties,  they  are  parol  and  a 
consideration  must  be  proved.     *     *     *" 

Question  43:  (1.)  State  the  facts  in  the  above  case,  the 
question  presented  and  the  court's  decision. 

(2.)  Is  there  any  distinction  between  oral  and  written  con- 
tracts so  far  as  necessity  of  consideration  is  concerned  ? 

Case  No.  44.    Page,  Contracts,  Sec.  274,  276. 

"A  valuable  consideration  is  some  legal  right  ac- 
quired by  the  promisor  in  consideration  of  his  promise, 
or  forborne  by  the  promisee  in  consideration  of  such 
promise.  A  common  form  of  stating  the  same  principal 
is  that  a  valuable  consideration  for  a  promise  may  con- 
sist of  a  benefit  to  the  promisor,  or  a  detriment  to  the 
promisee. 

"The  use  of  'benefit'  and  'detriment'  in  this  connec- 
tion need  explanation.  While  correct  if  properly  under- 
stood, it  is  liable  to  misconstruction.  'Benefit'  does  not 
refer  to  any  pecuniary  gain  arising  out  of  the  transac- 
tion nor  'detriment'  to  any  pecuniary  loss.  *  *  * 
'Benefit'  as  used  in  this  rule  means  that  the  promisor  has, 
in  return  for  his  promise,  acquired  some  legal  right  to 
which  he  would  not  otherwise  have  been  entitled;  'detri- 
ment' means  that  the  legal  right  which  he  would  other- 
wise have  been  entitled  to  exercise.     *     *     *" 

(276)  "*  *  *  We  observe  that  in  most  cases  that 
something  that  is  the  'benefit'  to  the  promisor,  is  also  a 
'detriment'  to  the  promisee,  the  former  acquiring  what 
the  latter  parts  with.  This,  however,  is  not  necessary. 
It  is  sufficient  if  there  is  a  'benefit'  to  the  promisor,  with- 
out any  'detriment'  to  the  promisee,  *  *  *.  It  is 
equally  sufficient  if  there  is  a  'detriment'  to  the  promisee 
without  any  'benefit'  to  the  promisor.     *     *     *" 

Question  44:     (1.)     Define  consideration. 


CONSIDERATION  79 

(2.)  What  is  meant  in  this  definition  by  the  terms  'benefit' 
and  'detriment'? 

(Note:  Illustration  of  consideration.  A  contracts  to  sell  B 
a  horse  for  $50.  The  consideration  for  A's  promise  is  B's 
promise  and  vice  versa.  A  in  his  capacity  of  promisee  sustains 
a  detriment,  i.  e.,  as  promisee,  or  one  to  whom  the  promise  was 
made,  he  has  in  return  for  such  promise,  made  a  promise  of  his 
own,  which,  when  suit  arises,  may  or  may  not  have  been  per- 
formed by  him.  In  this  case,  both  A  and  B  are  promisors  and 
promisees.  Take  another  case.  A  sells  B  a  horse  on  credit  for 
$50,  B  taking  immediate  possession  of  the  horse.  A  here  is  the 
sole  promisee,  his  detriment  consisting  in  his  parting  with  his 
right  to  keep  the  horse  on  the  strength  of  B's  promise.  Take 
Case  No.  43  where  the  administratrix  promised  to  pay  the  debt 
of  her  intestate.  The  creditor  was  the  promisee,  but  had  sus- 
tained no  detriment  on  account  of  the  promise,  in  other  words 
had  parted  with  nothing,  had  not  promised  to  part  with  anything 
and  had  done  nothing  by  reason  of  the  promise.  The  debt  or 
detriment  was  already  existing.  Had  the  creditor  given  up  his 
right  to  present  his  claim,  or  withheld  suit  a  definite  time,  or  in 
any  way  suffered  a  loss  of  rights  to  which  he  was  legally  entitled, 
the  promise  of  the  administratrix  would  have  been  enforceable. 
See  following  cases  for  examples  of  consideration. — Ed.) 

Sec.  35.    Adequacy  of  Consideration. 

Case  No.  45.    Schnell  v.  Nell,  17  Ind.  29. 

Facts:  For  and  in  consideration  of  one  cent,  Schnell 
agreed  to  pay  $600  to  Nell  and  others. 

Point  Involved:  Whether  adequacy  of  consideration 
is  material  to  the  validity  of  the  contract. 

Perkins,  J. :  "  The  consideration  of  one  cent  will  not 
support  the  promise  of  Schnell.  It  is  true  that  as  a  gen- 
eral proposition,  inadequacy  of  consideration  will  not 
vitiate  an  agreement.  *  *  *  But  this  doctrine  does 
not  apply  to  a  mere  exchange  of  sums  of  money,  of  coin 
whose  value  is  exactly  fixed,  but  to  the  exchange  of  some- 
thing of,  in  itself,  indeterminate  value  for  money,  or  per- 
haps, for  some  other  thing  of  indeterminate  value.  In 
this  case  had  the  one  cent  mentioned  been  some  particu- 


80  CONTRACTS 

lar  one  cent,  a  family  piece,  or  ancient,  remarkable  coin, 
possessing  an  indeterminate  value,  extrinsic  from  its 

simple  money  value,  a  different  view  might  be  taken. 

#     *     #  >> 

Question  45:  State  the  rule  with  reference  to  whether  the 
adequacy  of  consideration  is  material. 

(Note  to  Case  No.  45:  In  various  ways  inadequacy  of  consid- 
eration may  become  very  material.  (1.)  If  fraud  is  alleged  the 
inadequacy  of  the  consideration  may  with  other  evidence  tend 
to  show  the  fraud.  (2.)  If  specific  performance  of  a  contract  is 
sought,  the  fact  that  the  complainant  has  driven  an  unfair  bar- 
gain will  deprive  him  of  this  equitable  remedy  and  he  must  seek 
his  remedy  at  law  for  damages. 

From  the  mere  standpoint  of  the  validity  of  the  contract  in- 
adequacy is  immaterial.  As  one  may  give  away  his  property 
and  rights,  it  follows  he  may  sell  for  whatever  price  he  chooses. 
Were  it  otherwise,  there  could  be  no  freedom  in  private  bar- 
gaining.) 

B.    Examples  of  Consideration. 

§  36.  Promises  as  consideration.  §  38.  Performance  of  or  promise  to 
§  37.  Geiierally  of  sustaining  detri-  perform  executory  contract. 

ment.  §  39.  Part  payment  of  debt  as  con- 
§  38.  Past  act  and  promise  to  per-  sideration   for   discharge   of 

form   moral  obligation.  whole. 

§  39.  Performance  of  or  promise  to  §  40.  Compromise  and  settlement. 

perform  obligations  imposed 

by  law. 

Sec.  36.    Promises  as  Consideration. 

Case  No.  46.  American  Cotton  Oil  Co.  v.  Kirk,  68 
Fed.  791. 

Facts:  This  was  an  agreement  to  sell  10,000  barrels  of 
oil  at  a  stipulated  price,  in  such  quantities  per  week  as  the 
buyer  might  desire.  Action  for  the  breach  of  the  alleged 
contract : 

Point  Involved:  A  promise  is  a  valid  consideration  if 
of  sufficient  certainty  to  be  enforceable.  What  consti- 
tutes sufficient  certainty? 


CONSIDERATION  81 

Bunn,  District  Judge  :  ' '  *  *  *  There  are  several 
questions  *  *  *  but  we  have  found  it  necessary  to 
determine  but  one,  and  that  is  whether  the  contract 
*  *  is  a  valid  contract  for  the  sale  and  delivery  of 
10,000  barrels  of  oil,  or  is  it  invalid  for  want  of  mutuality 
in  its  provisions?  A  promise  on  the  part  of  the  defend- 
ant to  sell  and  deliver  10,000  barrels,  without  a  corre- 
sponding agreement  on  the  part  of  the  plaintiffs  to  pur- 
chase and  receive  it,  would  clearly  be  void  for  want  of 
mutuality.  "Where,  in  this  contract,  as  testified  to  by  the 
plaintiffs,  is  there  any  agreement  to  order  and  receive 
10,000  barrels  ?  It  is  clear  that  the  time  of  ordering,  as 
well  as  the  quantity,  is  left  wholly  to  the  discretion  of 
the  plaintiffs.  Deliveries  are  to  be  made  per  week,  as 
Kirk  &  Company  desire.  But  suppose  Kirk  &  Company 
do  not  desire,  and  do  not  order,  or  order  in  such  quanti- 
ties as  would  require  a  hundred  years  to  complete  the 
delivery, — is  there  any  way  open  to  the  defendant  to 
put  plaintiffs  in  default?  We  think  not,  and  that  there 
is  no  mutuality  of  promise  for  the  sale  of  a  definite  or 
ascertainable  quantity  of  oil.  Suppose  the  plaintiffs  had 
decided  upon  ordering  six  barrels  of  oil  per  week  or  one 
barrel  for  every  working  day.  That  would  require  32 
years  for  the  fulfillment  of  the  contract.  And  we  can 
discover  no  way,  by  the  terms  of  the  contract,  whereby 
the  defendant  could  put  the  plaintiffs  in  default  for  fail- 
ure to  order  more  oil  each  week,  because  the  amount  and 
times  of  ordering  are  left  wholly  to  the  plaintiffs.  If 
the  market  price  of  oil  should  fall  below  the  contract 
price,  then,  according  to  their  contention  as  to  the  terms 
of  the  contract,  the  plaintiffs  could  purchase  their  supply 
of  oil  elsewhere  and  at  the  lower  price,  resorting  to  the 
contract  when,  and  only  when,  the  price  stated  was  lower 
than  the  market  price — and  this  without  respect  to  time. 
Such  a  contract  is  one-sided,  and  without  mutuality.  If 
the  contract  had  been  that  the  plaintiffs  should  order  and 
receive,  and  the  defendant  should  ship,  all  the  oil  which 
would  be  required  in  the  plaintiff's  business  for  a  defi- 
nite period,  not  exceeding  10,000  barrels,  there  would  be 


82  CONTRACTS 

a  mutual  obligation.  The  plaintiffs  could  not,  in  such 
case,  order  oil  from  other  sources,  and  could  be  put  at 
fault  for  not  ordering  and  receiving  all  which  was  reason- 
ably required  to  run  their  plant.  The  case  would  then 
come  within  the  principle  of  National  Furnace  Company 
v.  Keystone  Manufacturing  Company,  110  111.  427.  In 
that  case  the  National  Furnace  Company  agreed  to  sell 
to  the  Keystone  Company  all  of  certain  quality  of  pig 
iron,  known  as  Lake  Superior  Charcoal  Iron,  which  the 
Keystone  Company  would  need,  use  or  consume  in  its 
business  during  the  coming  season  from  July  9,  1879,  to 
July  1,  1880,  such  amount  supposed  by  the  parties  to  be 
about  700  tons.  This  was  held  to  be  a  good  contract. 
The  Court  says :  'It  cannot  be  said  that  the  appellee  (Key- 
stone Company)  was  not  bound  by  the  contract.  It  has 
no  right  to  purchase  iron  elsewhere  for  use  in  its  busi- 
ness. If  it  had  done  so,  appellant  might  have  main- 
tained an  action  for  breach  of  the  contract. l 

"In  the  case  at  bar,  there  was  no  agreement  on  the 
part  of  plaintiffs  to  purchase  from  defendant  all  the  oil 
they  required  in  their  business.  They  might  order  as  lit- 
tle as  they  pleased,  and  supply  the  bulk  of  what  they 
needed  from  other  sources.  The  contract  had  the  effect 
merely  to  bind  the  plaintiffs  to  receive  and  pay  for  at  the 
stipulated  price  all  the  oil  which  might  be  shipped  upon 
their  order,  from  time  to  time,  by  the  defendant,  not  ex- 
ceeding 10,000  barrels.  Further  than  that  it  can  have 
no  binding  force,  for  want  of  mutuality.     *     *     *M 

Question  46:  (1.)  State  the  facts,  the  question  presented 
and  the  decision  of  the  court  in  the  above  case. 

(2.)  "What  was  the  difference  between  the  facts  in  this  case 
and  the  facts  in  the  National  Furnace  Company  case  cited  and 
discussed  in  the  above  opinion? 

(3.)  A  agreed  to  sell  and  B  agreed  to  buy,  at  specified  prices, 
2,000  cases  Old  Walker  Whiskey,  in  1909,  3,000  cases  in  1910, 
4,000  cases  1911,  and  5,000  cases  1912,  and  the  contract  provided : 
1 '  If  for  any  unforeseen  reason,  the  party  of  the  second  part  find 
they  cannot  use  the  full  amount  of  the  above  named  goods,  the 
party  of  the  first  part  agrees  to  release  them  from  the  contract 


CONSIDERATION  83 

for  the  amount  desired  by  the  party  of  the  second  part."  A 
then  refused  to  deliver  whiskey  to  B  under  this  agreement,  and 
B  sues  for  damages.  Should  he  recover?  Rehm-Zeiker  Co.  v. 
F.  G.  Walker  Co.,  156  Ky.  6 ;  49  L.  R.  A.  new  series,  694. 

Sec.  37.    Generally  of  Sustaining  Detriment. 

Case  No.  47.     Hamer  v.  Sidway,  124  N.  Y.  538. 

Facts:  A,  uncle  of  B,  promised  B,  who  was  then  a 
minor,  that  if  B  would  refrain  from  drinking,  using  to- 
bacco, swearing  and  playing  cards  or  billiards  until  21 
years  of  age,  he  would  pay  B  $5,000.  To  this  B  assented. 
The  promisor  is  now  dead  and  one  Sidway,  who  has  se- 
cured B's  claim,  seeks  to  enforce  it  against  the  executor 
of  A's  estate. 

Point  Involved:  If  one  induces  another  by  a  promise 
of  reward  to  pursue  a  certain  way  of  life,  which  is  of  no 
benefit  to  the  promisor  and  possibly  of  much  actual  ben- 
efit to  the  promisee,  does  the  acceptance  of  such  promise 
constitute  a  legal  detriment  to  such  promisee? 

Parker,  J. ;  "The  defendant  contends  that  the  contract 
was  without  consideration  *  *  *  and  therefore  in- 
valid. He  asserts  that  the  promisee  *  *  *  was  not 
harmed  but  benefited ;  and  insists  that  *  *  *  unless 
the  promisor  (the  uncle)  was  benefited,  the  contract  was 
without  consideration.  *  *  *  Courts  will  not  ask 
whether  the  thing  which  forms  the  consideration  does  in 
fact  benefit  the  promisee  or  a  third  party,  or  is  of  any 
substantial  value  to  any  one.  It  is  enough  that  something 
is  promised,  done,  forborne,  or  suffered  by  the  party  to 
whom  the  promise  is  made  as  consideration  for  the  prom- 
ise made  to  him.  Anson's  Prin.  of  Con.  63.  'In  general 
a  waiver  of  any  legal  right  at  the  request  of  another  party 
is  a  sufficient  consideration  for  a  promise.'  Parsons  on 
Contracts,  444. 

''Now,  applying  this  rule  to  the  facts  before  us,  the 
promisee  used  tobacco,  occasionally  drank  liquor,  and  he 
had  a  legal  right  to  do  so.  That  right  he  abandoned  for  a 
period  of  years  upon  the  strength  of  the  promise  of  the 


84  CONTRACTS 

testator  that  for  such  forbearance  he  would  give  him 
$5,000.     *     *     •" 

Question  47:  (1.)  State  the  facts,  the  question  presented 
and  the  court's  decision  in  the  above  case. 

(2.)  A  manufactured  a  certain  medicine  for  asthma  and 
advertised  that  if  any  one  troubled  with  that  disease  would  take 
a  certain  dose  every  day  for  three  months,  and  remained  uncured, 
he  would  pay  such  person  $500.  B  read  the  advertisement,  and 
took  the  medicine  as  directed.  Being  uncured,  he  sued  A. 
Could  he  recover? 

(3.)  A  promised  B,  that  if  B  would  name  his  son  C  after  A, 
he,  A,  would  pay  him  $10,000.  B  accepted  and  did  so.  Can  B 
recover  the  money?  Gardner  v.  Dennison,  105  N.  E.  (Mass.)  359. 

Sec.  38.    Past  Act;  Promise  to  Perform  Moral  Obliga- 
tion. 

Case  No.  48.    Mills  v.  Wyman,  3  Pick.  (Mass.)  207. 

Facts:  Defendant's  adult  son  fell  sick  among  strangers. 
Plaintiff  cared  for  him.  Defendant  hearing  of  this  prom- 
ised to  pay  plaintiff  for  what  he  had  done,  but  after- 
wards refused.  This  is  a  suit  to  enforce  defendant's 
promise. 

Point  Involved:  Is  a  promise  to  pay  for  a  past  act, 
gratuitously  performed,  enforceable  as  a  contract. 

Parker,  C.  J. :  * '  General  rules  of  law  established  for 
the  protection  and  security  of  honest  and  fair  minded 
men,  who  may  inconsiderately  make  promises  without 
any  equivalent,  will  sometimes  screen  men  of  a  different 
character  from  engagements  which  they  are  bound  in 
fora  conscientice  to  perform.  *  *  *  The  rule  that  a 
mere  verbal  promise,  without  any  consideration,  cannot 
be  enforced  by  action,  is  universal  in  its  application  and 
cannot  be  departed  from  to  suit  particular  cases  in  which 
a  refusal  to  perform  such  a  promise  may  be  disgraceful. 

"The  promise  made  in  this  case  appears  to  have  been 
made  without  any  legal  consideration.  The  kindness 
and  services  toward  the  sick  son  of  the  defendant  were 
not  bestowed  at  his  request.    The  son  was  in  no  respect 


CONSIDERATION  85 

tinder  the  care  of  the  defendant.  He  was  twenty-five 
years  old,  and  had  long  left  his  father's  family.  On  his 
return  from  a  foreign  country  he  fell  sick  among 
strangers,  and  the  plaintiff  acted  the  part  of  the  good 
Samaritan,  giving  him  shelter  and  comfort  until  he  died. 
The  defendant,  his  father,  *  *  *  promises  in  writing 
to  pay  the  plaintiff  for  expenses  he  had  incurred.  But 
he  has  determined  to  break  his  promise. 

"It  is  said  that  a  moral  obligation  is  a  sufficient  con- 
sideration to  support  an  express  promise,  *  *  * ;  but 
*  *  *  we  are  satisfied  that  the  universality  of  the  rule 
cannot  be  supported,  *  *  *.  The  cases  of  debts 
barred  by  the  statute  of  limitations,  or  debts  incurred  by 
infants,  or  debts  of  bankrupts,  are  generally  put  for  il- 
lustrations of  the  rule.  Express  promises  founded  on 
such  pre-existing  equitable  obligations  may  be  enforced ; 
there  is  a  good  consideration  for  them;  they  merely  re- 
move an  impediment  created  by  law  to  the  recovery  of 
debts  honestly  due,  but  which  public  policy  protects  the 
debtors  from  being  compelled  to  pay.  *  *  *  In  all 
these  cases  there  is  a  moral  obligation  founded  upon  an 
antecedent  valuable  consideration.  *  *  *"  [The 
Court  holds  this  promise  to  raise  merely  a  moral  and  not 
a  legal  obligation  and  therefore  unenforceable.] 

Question  48:  How  did  the  court  distinguish  from  this  case, 
the  cases  of  promises  to  pay  debts  barred  by  the  statute  of  limi- 
tations, debts  incurred  by  infants,  and  debts  of  bankrupts  ? 

Sec.  39.    Performance  of  or  Promise  to  Perform  Obliga- 
tions Imposed  by  Law. 

Case  No.  49.    Hogan  v.  Stophlet,  179  111.  150. 

Facts:  Hogan  was  sheriff  of  P.  County.  A  building 
belonging  to  Stophlet  having  been  destroyed  by  an  in- 
cendiary fire,  Stophlet  offered  a  reward  for  the  appre- 
hension and  conviction  of  the  culprit.  Hogan  now  sues 
to  recover  the  reward. 

Point  Involved:   If  the  law  imposes  on  one  a  duty  to  do 


86  CONTRACTS 

a  certain  thing,  is  the  performance  of  that  duty  sufficient 
to  support  a  promise  by  another  to  pay  for  it? 

Mr.  Justice  Magruder  :  "  *  *  *  It  being  true,  that 
it  was  the  official  duty  of  the  appellant  as  sheriff  to  make 
the  arrest  of  the  guilty  party,  and  that  the  fees,  which 
he  is  entitled  to  charge  for  the  performance  of  his  official 
duties  are  fixed  by  law,  it  follows  upon  well  established 
principles  that  the  appellant  was  not  entitled  to  the  re- 
ward sued  for  in  this  case.  It  is  against  public  policy  to 
allow  a  man  to  recover  a  reward  for  doing  his  duty  as  a 
public  officer.  *  *  *  A  promise  to  pay  an  officer  a 
reward  for  doing  what  it  is  his  duty  to  do  under  the  law 
is  a  promise  without  any  consideration  to  support  it. 

"The  claim  that  extra  services  have  been  rendered  fur- 
nishes no  warrant  in  such  cases  for  the  charge  of  extra 
compensation.  *  *  *  If  a  constable  for  making  ex- 
traordinary efforts  to  perform  an  ordinary  official  act, 

*  *  *  may  collect  by  law  a  compensation  beyond  what 
the  statute  allows  for  the  act,  any  other  officer  may  do  the 
same ;  and  sheriffs,  legislators  and  judges  might  *  *  * 
find  their  'extraordinary  efforts'  in  the  market  to  be  had 
by  the  highest  bidder.  This  is  a  sickening  and  revolting 
view  of  the  subject. 

"There  are  some  decisions    *    *     *    to  the  contrary 

*  *  *  where  the  officer  arrested  the  offender  beyond 
his  territorial  jurisdiction.     *     *     *" 

Question  49:  (1.)  Upon  what  two  grounds  did  the  court  in 
the  above  case  deny  the  plaintiff  his  case  ? 

(2.)  A  is  a  fireman  whose  sworn  duty  is  to  do  his  utmost  to 
put  out  fires.  B  's  house  takes  fire  and  B  offers  a  reward  of  $500 
if  A  will  rescue  B  's  wife  who  is  on  an  upper  story  in  the  burning 
building.  A  at  the  risk  of  his  life  accomplishes  the  rescue.  Can 
he  force  B  to  pay  the  reward? 

Sec.  40.    Promise  to  Perform  Executory  Contract. 

Case  No.  50.  Johnson's  Adm'r  v.  Seller's  Adm'r,  33 
Ala.  265. 


CONSIDERATION  87 

Facts:  Johnson  agreed  to  teach  school  at  Camden  and 
bring  his  wife  as  an  assistant.  Afterwards,  threatening 
not  to  bring  her,  he  was  promised  additional  compensa- 
tion to  do  so.  The  promisor  now  refuses  to  pay  the  addi- 
tional compensation. 

Point  Involved:  If  one  induces  a  promise  of  extra 
benefit  by  threatening  to  break  his  contract  unless  such 
benefit  is  forthcoming,  is  there  any  consideration  for  the 
promise? 

Walker,  J. :  ' '  *  *  *  The  ninth  and  tenth  charges 
assert  the  proposition  that  if  Johnson  contracted  to  bring 
and  associate  his  wife  with  him  in  teaching  school  and 
then  refused  to  comply  with  that  contract,  a  promise  by 
Sellers  to  give  him  $2,500,  in  order  to  induce  him  to  com- 
ply, would  be  without  consideration.  In  our  judgment 
these  charges  are  correct.  Johnson  by  his  contract  was 
legally  bound  to  bring  his  wife  to  teach  in  the  school  if 
the  contract  was  such  as  the  charge  supposes.  He  had 
no  right  to  violate  that  contract  and  compensate  the  in- 
jured party  in  damages.*     *     * 

1 '  If  two  parties  make  a  contract,  one  of  them  may  waive 
the  performance  of  the  contract  by  the  other,  and  assume 
some  new  and  additional  obligation  as  the  consideration 
for  the  performance  by  the  other.  Such  obligation  would 
be  binding. 

a  *  *  *  j^.  -g  competent  for  the  parties  to  a  contract 
to  waive  their  rights  growing  out  of  it  as  originally  made, 
and  engraft  upon  it  new  terms.     *     *     *  " 

Question  50:  State  the  facts,  the  question  presented  and  the 
court's  decision  in  the  above  case. 

(Note :  It  is  generally  agreed  that  a  mere  promise  by  one  to 
perform  his  contract  is  not  a  consideration  to  support  a  promise 
to  pay  him  additional  compensation  for  so  doing.  Such  cases 
arise  where  one  party  refuses  to  go  on  with  his  contract  unless 
some  greater  inducement  is  offered  than  that  for  which  he  under- 
took to  perform.  Yet,  consistently  with  this  doctrine,  the  parties 
to  a  contract  may  always  agree  to  modify  its  terms,  or  to  aban- 
don it  altogether  and  then  make  a  new  contract. 


88  CONTRACTS 

In  some  states  the  doctrine  has  had  an  exception  made  to  it,  as 
shown  in  the  following  case.) 

Case  No.  51.    Linz  v.  Shuck,  106  Md.  220. 

Facts:  Plaintiff  made  a  written  contract  to  dig  a  cel- 
lar for  defendant  for  $500.  After  beginning  work,  he 
discovered  a  large  quantity  of  soft  mud  beneath  the  sur- 
face of  the  ground,  the  existence  of  which  was  unsus- 
pected by  either  party,  and  which  made  the  digging  of 
the  cellar  much  more  expensive  and  difficult.  Plaintiff 
alleges  that  he  then  refused  to  complete  the  contract  and 
that  defendant  thereupon  induced  him  to  do  so  by  prom- 
ising to  pay  the  additional  expenses  caused  by  draining, 
etc. 

Point  Involved:  Whether  when  one  is  under  a  contract 
to  do  certain  work,  and  in  doing  it,  certain  difficulties 
arise  that  were  unforeseen  by  both  parties,  a  promise  to 
pay  additional  compensation  for  the  completion  of  the 
contract  is  enforceable. 

Boyd,  J.:  "*  *  *  The  principal  question  in  the 
case  is  whether  the  plaintiff  was  entitled  to  recover  for 
the  additional  costs  and  expenses  incurred.  *  *  * 
(here  the  court  sets  out  plaintiff's  fifth  'prayer').  That 
prayer  seems  to  have  followed  quite  closely  the  language 
used  in  King  v.  Duluth,  M.  and  N.  R.  Co.,  61  Minn.  487,  63 
N.  W.  1105,  which  case,  notwithstanding  unfavorable 
criticism  by  some  writers,  in  our  opinion  announces  a 
principle  which  is  not  only  just  and  equitable,  but 
is  easily  reconcilable  with  the  general  rule  that  a 
promise  to  do,  or  actually  doing  that  which  a 
party  to  a  contract  is  already  under  legal  obligation  to 
do,  is  not  a  valid  consideration  to  support  the  promise 
of  the  other  party  to  the  contract  to  pay  additional  com- 
pensation for  such  performance.  *  *  *  When  two 
parties  make  a  contract,  based  on  supposed  facts  which 
they  afterwards  ascertain  to  be  incorrect,  and  which 
would  not  have  been  entered  into  by  one  party  had  he 
known  the  actual  conditions  which  the  contract  required 
him  to  meet,  not  only  courts  of  justice,  but  all  right  think- 


CONSIDERATION  89 

ing  persons  must  believe  the  fair  course  for  the  other 
party  to  the  contract  to  pursue  is  either  to  relieve  the 
contractor  of  going  on  with  his  contracts  or  to  pay  him 
additional  compensation.  If  the  difficulties  be  unfore- 
seen, and  such  as  neither  party  contemplated  or  could 
have  from  the  appearance  of  the  thing  to  be  dealt  with 
anticipated,  it  would  be  an  extremely  harsh  rule  of  law  to 
hold  that  there  was  no  legal  way  of  binding  the  owner  of 
property  to  fulfil  a  promise  made  by  him  to  pay  the  con- 
tractor such  additional  sum  as  such  unforeseen  difficulties 
cost  him,     *     *     ••" 

Question  51:  (1.)  State  the  facts,  the  question  presented 
and  the  court 's  decision  in  the  above  case. 

(2.)  Assuming  there  had  been  no  additional  promise  in  the 
above  case,  would  the  contractor  have  been  guilty  of  breach  had 
he  abandoned  the  contract  on  account  of  such  unforeseen  diffi- 
culty? 

(Note  to  above  case :  In  a  few  states  the  doctrine  of  the  above 
case  has  been  adopted.  It  is  known  as  the  ' '  Minnesota  doctrine. ' ' 
It  is  a  doctrine  difficult  to  support  on  the  theory  of  consideration, 
and  it  is  not  recognized  in  most  of  the  states.  The  student  must 
not  get  the  impression  that  the  above  contract  was  not  enforce- 
able as  originally  made.  An  abandonment  would  have  been  a 
breach.) 

Sec.  41.    Part  Payment  of  Debt  as  Consideration  for 
Discharge  of  Whole  Debt. 

(a)   The  general  rule.  (b)  The    rule    not    applicable    and 

qualifications  of  the  rule. 

(a)     The  General  Rule. 

Case  No.  52.    Pinnell's  Case,  5  Co.  117. 

1 '  Pinnel  brought  an  Action  of  Debt  on  a  Bond  against 
Cole  of  16 1.  for  Payment  of  8 1.  10s.  the  11th  Day 
of  November,  1600.  The  Defendant  pleaded,  that  he 
at  the  Instance  of  the  Plaintiff,  before  the  said  Day, 
scil.  1  Octob.  Anno  44.  apud  W.  solvit  querenti  51.  2s. 


90  CONTRACTS 

2d.  quas  quidem  5  1.  2s.  2d.  the  Plaintiff  accepted  in  full 
Satisfaction  of  the  8 1.  10s.  And  it  was  resolved  by  the 
whole  Court,  That  Payment  of  a  lesser  Sum  on  the  Day 
in  Satisfact.  of  a  greater,  cannot  be  any  Satisfaction  for 
the  whole,  because  it  appears  to  the  Judges  that  by  no 
Possibility,  a  lesser  Sum  can  be  a  Satisfaction  to  the 
Plaintiff  for  a  greater  Sum:  But  the  Gift  of  a  Horse, 
Hawk,  or  Robe,  &c.  in  Satisfaction  is  good.  For  it  shall 
be  intended  that  a  Horse,  Hawk,  or  Robe,  &c.  might  be 
more  beneficial  to  the  Plaintiff  than  the  Money  in  Re- 
spect of  some  Circumstance,  or  otherwise  the  Plaintiff 
would  not  have  accepted  of  it  in  Satisfaction.  But  when 
the  whole  Sum  is  due,  by  no  Intendment  the  Acceptance 
of  Parcel  can  be  Satisfaction  to  the  Plaintiff:  But  in 
the  Case  at  Bar  it  was  resolved,  that  the  Payment  and 
Acceptance  of  Parcel  before  the  Day  in  Satisfaction  of 
the  whole,  would  be  a  good  Satisfaction  in  Regard  of 
Circumstance  of  Time ;  for  Peradventure  Parcel  of  it  be- 
fore the  Day,  would  be  more  beneficial  to  him  than  the 
whole  at  the  Day,  and  the  Value  of  the  Satisfaction  is 
not  material :  So  if  I  am  bound  in  20 1.  to  pay  you  10 1.  at 
Westminster,  and  you  Request  me  to  pay  you  5  1.  at  the 
Day  at  York,  and  you  will  accept  it  in  full  Satisfact.  of 
the  whole  10 1.  it  is  a  good  Satisfact.  for  the  whole :  For 
the  Expences  to  pay  it  at  York,  is  sufficient  Satisfaction ; 
But  in  this  Case  the  Plaintiff  had  Judgment  for  the  in- 
sufficient Pleading;  for  he  did  not  plead  that  he  had 
payed  the  5 1.  2s.  2d.  in  full  Satisfaction  (as  by  the  Law 
he  ought)  but  pleaded  the  Payment  of  Part  generally; 
and  that  the  PI.  accepted  it  in  full  Satisfaction.  And  al- 
ways the  Manner  of  the  Tender  and  of  the  Payment, 
shall  be  directed  by  him  who  made  the  Tender  or  Pay- 
ment, and  not  by  him  who  accepts  it.  And  for  this  Cause 
Judgment  was  given  for  the  Plaintiff. 

''See  Reader  26  H.  6.  Barre  37.  in  Debt  on  a  Bond  of 
10 1.  the  Defendant  pleaded,  that  one  F.  was  bound  by 
the  said  Deed  "with  him,  and  each  in  the  whole,  and  that 
the  Plaintiff  had  made  an  Acquittance  to  F.  bearing  Date 
before  the  Obligat.  and  delivered  after,  by  which  Ac- 


CONSIDERATION  91 

quittance  he  did  acknowledge  himself  to  be  paid  20s.  in 
full  Satisfaction  of  the  10 1.  And  it  was  adjudged  a  good 
Bar ;  for  if  a  Man  acknowledges  himself  to  be  satisfied  by 
Deed  [instrument  under  seal],  it  is  a  good  Bar,  without 
any  Thing  received.  Vide.  12  R.  2,  Barre  243.  26  H.  6 
Barre37,  &  10  H.  7,&c." 

Question  52:  Was  the  defense  in  this  ease  good  on  the  facts 
thereof  ?    Under  what  facts  would  it  not  have  been  good  ? 

(Note :  The  proposition  that  payment  of  a  lesser  sum  than  is 
due  can  not  support  a  promise  to  release  the  entire  debt  is  the 
great  weight  of  authority.  The  rule  has,  however,  been  judicially 
repudiated  in  the  case  of  Clayton  v.  Clarke,  74  Miss.  499;  37 
L.  R.  A.  771,  and  has  been  changed  by  statute  in  some  states 
(Alabama,  Georgia,  Maine,  North  Carolina,  Tennessee  and  Vir- 
ginia). It  has  also  in  all  jurisdictions  been  confined  to  the  nar- 
rowest limits.    See  following  cases.) 

(b)  The  Rule  Not  Applicable  and  Qualifications  of  the 

Rule. 

Case  No.  53.     Snow  v.  Griesheimer,  220  111.  106. 

Facts:  There  was  a  dispute  between  the  parties  as  to 
the  amount  of  rent  due  from  G.  to  S.  on  account  of  certain 
repairs  made  by  G.,  the  tenant,  for  which  he  claimed  S., 
as  landlord,  promised  to  reimburse  him.  G.  sent  checks 
to  S.,  marking  them  as  in  "full  payment."  S.  received 
and  banked  the  checks  but  insisted  that  they  were  only 
received  on  account,  and  afterwards  sued  for  the  balance 
claimed. 

Point  Involved:  If  the  amount  of  a  debt  is  in  dispute, 
is  an  agreement  to  accept  in  full  settlement  an  amount 
less  than  the  full  amount  claimed  by  the  creditor  sup- 
ported by  a  good  consideration?  Is  the  acceptance  and 
retention  of  a  check  an  acceptance  of  the  terms  on  which 
it  is  sent,  notwithstanding  protests  to  the  contrary? 

Mr.  Chief  Justice  Cartwright  delivered  the  opinion  of 
the  Court :  "  *  *  *  The  law  is  that  where  the  amount 
due  a  creditor  is  ascertained  and  not  in  dispute  the  pay- 
ment by  the  debtor  and  acceptance  by  the  creditor  of  a 


92  CONTRACTS 

less  sum  will  not  operate  as  a  satisfaction  of  the  demand, 
but  if  the  amount  due  is  unliquidated  or  there  is  a  bona 
fide  dispute  as  to  how  much  is  due,  a  payment  of  the 
amount  claimed  by  the  debtor  to  be  due,  in  full  settle- 
ment, if  accepted  by  the  creditor  is  a  satisfaction  of  the 
claim.  It  is  not  necessary  that  the  debtor  shall  pay 
more  in  that  case  than  he  admits  to  be  due,  and  if  a  check 
for  such  sum  is  offered  in  payment  of  a  disputed  account, 
it  must  be  accepted  by  the  creditor  upon  the  terms  upon 
which  it  is  offered  or  must  be  rejected.  If  a  check  is 
offered  in  full  payment  of  the  demand,  an  acceptance  will 
satisfy  the  demand  although  the  creditor  protests  at  the 
time  that  it  is  not  all  that  is  due  him  or  that  he  does  not 
accept  it  in  full  satisfaction  of  his  claim.     *     *     * ' ' 

Question  53:  (1.)  State  the  facts,  the  question  presented 
and  the  court 's  decision  in  the  above  case. 

Case  No.  54.    Jaffray  v.  Davis,  124  N.  Y.  164. 

Facts:  Defendant  owed  plaintiff  for  goods  sold,  a  debt 
of  $7,714.37,  and  in  settlement  thereof  gave  three  promis- 
sory notes  aggregating  $3,462.24,  secured  by  a  chattel 
mortgage,  and  the  agreement  was  that  this  settlement 
should  operate  as  a  full  discharge.  The  notes  having 
been  paid,  plaintiff  now  sues  for  the  balance  on  the  theory 
that  there  was  no  consideration  for  its  release. 

Point  Involved:  Whether  if  a  settlement  in  full  be  ef- 
fected of  an  undisputed  claim  by  a  payment  of  less  than 
the  amount  claimed,  with  something  else  done  or  given 
than  the  mere  payment  of  money,  the  balance  of  the  debt 
can  be  recovered. 

Potter,  J. :  (The  Court  after  stating  the  point  involved, 
then  reviews  many  cases  which  show  that  where  a  debt 
is  liquidated  and  not  the  subject  of  bona  fide  dispute,  a 
payment  of  a  less  sum  to  discharge  it  will  not  operate 
as  a  complete  discharge,  though  so  received,  but  that  if 
there  be  anything  else  than  money  given,  as  "a  horse, 
hawk,  or  robe,"  the  agreement  will  stand,  or  if  some 
new  security  be  given  (as  in  the  present  case),  the  entire 


CONSIDERATION  93 

debt  will  be  discharged  as  agreed  upon;  and  then  the 
court  continues) : 

"These  cases  show  in  a  striking  manner  the  extreme 
ingenuity  and  assiduity  which  the  Courts  have  exercised 
to  avoid  the  operation  of  the  rigid  and  rather  unreason- 
able rule  of  the  old  law  *  *  *  '  technical  and  not  very 
well  supported  by  reason, '  or  as  may  be  more  practically 
stated,  a  rule  that  'a,  bar  of  gold  worth  $100  will  dis- 
charge a  debt  of  $500,  while  400  gold  dollars  in  current 
coin  will  not.'  " 

<<*  *  *  rpjjg  consideration  of  the  new  agreement 
(in  the  present  case)  was  that  the  plaintiffs,  in  place 
of  an  open  book  account  for  goods  sold,  got  the  defend- 
ant's promissory  notes,  probably  negotiable  in  form, 
signed  by  defendant,  *  *  *  and  got  security  upon 
all  the  defendant's  personal  property  for  the  payment 
of  the  sum  specified  in  the  notes,  where  before  they  had 
no  security.     *     *     * 

"It  seems  to  me  *  *  *  the  transactions  *  *  * 
constitute  a  bar  to  this  action." 

Question  54:  (1.)  State  the  facts,  the  question  presented 
and  the  court 's  decision  in  the  above  case. 

(Note:  It  is  everywhere  the  law  that  the  acceptance  by  the 
creditor  of  some  additional  advantage,  however  slight,  in  addi- 
tion to  the  payment  of  the  part  of  the  debt,  is  enough  to  make 
the  full  release  given  in  return  therefor  effective.  See  the  lan- 
guage in  the  next  case.  Whether  the  giving  by  the  debtor  of 
his  own  negotiable  paper,  with  no  other  advantage,  is  effective, 
is  in  question  under  the  authorities.  That  it  will  sustain  the 
settlement,  see  Sard  v.  Rhodes  1  Mees.  &  W.  183 ;  Wells  v.  Mor- 
rison, 91  Ind.  51 ;  Listers,  etc.,  Co.  v.  Pender,  74  Md.  15 ;  but  the 
point  has  not  been  raised  in  many  cases,  and  seems  in  many 
jurisdictions,  especially  in  the  case  of  a  check,  to  be  entitled  to 
no  weight.  Thus  in  Case  No.  53,  supra,  the  fact  that  payment 
was  by  check  is  not  considered.) 

Case  No.  55.  Melroy  v.  Kemmerer,  218  Pa.  381,  11 
L.  R.  A.,  new  series,  1018. 

Facts:    The   debtor  being  in   failing  circumstances, 


94  CONTRACTS 

offered  his  creditor  30  per  cent  of  his  debt  as  a  payment 
in  full,  otherwise  he  would  go  through  bankruptcy.  The 
proposition  was  accepted  and  the  30  per  cent  paid.  This 
is  a  suit  for  the  balance. 

Point  Involved:  Whether,  if  a  creditor  accepts  less 
than  his  full  debt  in  full  satisfaction  from  a  debtor  who 
is  on  the  verge  of  bankruptcy,  who  agrees  to  give  that 
amount  and  avoid  bankruptcy,  there  is  a  good  discharge 
of  the  entire  debt. 

Mitchell,  C.  J. :  *  *  It  was  said  in  Ebert  v.  Johns,  206 
Pa.  395,  55  Atl.  1064,  that  the  rule  that  the  acceptance 
of  a  smaller  sum  for  a  debt  presently  due,  though  agreed 
and  expressed  to  be  payment  in  full,  is  not  a  good  accord 
and  satisfaction,  was  a  deduction  of  scholastic  logic,  and 
was  always  regarded  as  more  logical  than  just,  and  hence 
any  circumstance  of  variation  is  sufficient  to  take  a  case 
out  of  the  rule!  As  illustrations  of  such  circumstances 
of  variation,  it  has  been  held  that  payment  a  day,  or 
even  an  hour,  before  the  debt  is  due,  or  at  a  different 
place,  or  of  a  certainty  in  amount  where  the  amount  of 
the  debt  is  uncertain,  or  payment  of  even  a  part  by  a 
third  person,  or  additional  security  of  any  kind,  such 
as  the  indorsement  of  a  note  by  a  third  person,  or  pay- 
ment in  chattels  or  anything  other  than  money,  will  be 
a  good  discharge  of  the  whole  by  way  of  accord  and  sat- 
isfaction. Note  to  Cumber  v.  Wane,  1  Smith,  Lead.  Cas. 
357.  And  see  a  full  collection  of  the  more  recent  cases 
in  the  note  to  Fuller  v.  Kemp,  in  20  L.  E.  A.  785.  The 
rule  itself  is  founded  on  the  want  of  consideration  for 
the  agreement.  As  a  part  can  never  be  equal  to  the 
whole,  payment  of  a  part  of  a  debt  presently  due  gives 
the  creditor  nothing  that  he  was  not  entitled  to,  and  de- 
prives the  debtor  of  nothing  he  was  not  bound  to  part 
with  before,  and  therefore  there  is  no  consideration.  The 
logic  is  unimpeachable,  but  it  fails  to  take  into  consider- 
ation the  practical  importance  of  the  difference  between 
the  right  to  a  thing  and  the  actual  possession  of  it.  As 
said  in  Ebert  v.  Johns,  supra,  'To  a  merchant  with  a 
note  coming  due,  $5,000  before  3  o'clock  today,  which 


CONSIDERATION  95 

will  save  Ms  commercial  credit,  may  well  be  worth  more 
than  $20,000  tomorrow,  after  his  note  has  gone  to  pro- 
test.' If  the  debt  is  not  due  till  tomorrow,  the  payment 
of  the  lesser  sum,  under  all  the  cases,  will  be  a  good  ac- 
cord and  satisfaction ;  but  if  the  debt  was  due  yesterday, 
but  the  debtor  can  only  pay  part  of  it  today,  the  benefit 
to  the  creditor  of  getting  that  part  now,  rather  than  the 
whole  when  it  is  too  late,  is  just  as  great,  and  whatever 
conclusion  the  scholastic  logic  and  theoretical  reason- 
ing may  lead  to,  the  importance  of  the  practical  result 
is  a  matter  for  the  creditor  to  decide  for  himself,  and, 
having  so  decided  and  got  the  benefit  of  it,  justice  and 
common  honesty  ought  to  hold  him  to  his  agreement. 
For  this  reason,  the  force  of  which  is  universally  ac- 
cepted, the  courts,  so  far  as  they  could  without  sacrifice 
of  the  maxim  of  stare  decisis,  have  brought  the  law  into 
closer  accord  with  modern  business  principles. 

"In  the  present  case  the  debtor,  being  in  failing  cir- 
cumstances and  contemplating  bankruptcy,  offered  the 
plaintiffs  30  per  cent  of  his  debt  as  a  settlement  in  full. 
The  plaintiffs  dissuaded  him  from  going  into  bankruptcy, 
accepted  his  alternative  offer,  received  the  money,  and 
closed  the  account.  They  have  now  brought  this  suit  for 
the  balance.  In  the  absence  of  any  express  decision  in 
this  state  on  this  point,  the  learned  judge  below  did  not 
feel  at  liberty  to  depart  from  the  general  rule.  We  have 
no  such  hesitation.  The  exact  point  is  whether  the 
debtor's  relinquishment  of  his  intention  to  seek  a  dis- 
charge in  bankruptcy,  and  his  payment  of  30  per  cent 
instead,  constitute  a  sufficient  consideration  to  bind  the 
creditor  to  the  agreement.  On  that  point  we  have  no 
doubt.  A  valuable  consideration  may  consist  in  some 
right,  interest,  or  benefit  to  one  party,  or  some  loss, 
detriment,  or  responsibility  resulting,  actually  or  poten- 
tially, to  the  other.  Bouvier's  Law  Diet.  'If  there  is 
any  advantage  to  the  creditor,  the  law  will  not  weigh 
the  adequacy  of  the  consideration.'  Fowler  v.  Smith, 
153  Pa.  639,  25  Atl.  744.  The  accord  in  this  case  was 
good  on  both  branches.    By  it  the  creditors  got  a  sum 


96  CONTRACTS 

certain,  instead  of  the  chances  of  an  uncertain  dividend 
in  bankruptcy.  On  the  other  hand,  the  debtor  assumed 
the  responsibility  of  paying  a  sum  certain,  whether  his 
assets  were  sufficient  or  not,  and  gave  up  his  right  to  a 
release  of  his  future  assets,  and  to  a  discharge  from 
his  whole  debt,  without  regard  to  the  sufficiency  of  his 
present  assets. 

"The  decisions  on  this  exact  point  in  other  states  are 
not  numerous,  but  the  general  trend  is  uniform  to  the 
result  we  have  reached.  In  Hinkley  v.  Arey,  27  Me.  362, 
it  was  said  by  Tenney,  J.,  'In  this  case  the  plaintiff 
was  informed  that  the  defendant  contemplated  taking 
the  benefit  of  the  bankrupt  act,  which  was  then  in  force. 
If  this  intention  had  been  carried  out,  the  plaintiff  would 
lose  the  whole  debt,  beyond  what  he  might  receive  as  a 
dividend;  and  the  latter,  judging  from  his  letter,  lie 
did  not  consider  as  very  valuable.  To  save  himself  from 
a  greater  loss  under  the  law,  he  agreed  upon  the  terms 
of  composition  offered.  The  defendant,  upon  the  agree- 
ment and  payment  to  Hubbard,  took  no  further  steps 
to  obtain  relief  under  the  bankrupt  law. '  It  was  accord- 
ingly held  that  the  accord  and  satisfaction  were  good. 
The  same  ruling  was  made  in  Dawson  v.  Beall,  68  Ga. 
328.  And  in  Curtiss  v.  Martin,  20  111.  557,  578;  Eng- 
bretson  v.  Seiberling,  122  Iowa,  522,  64  L.  R.  A.  75,  101 
Am.  St.  Rep.  279,  98  N.  W.  319,  and  Rice  v.  London  & 
N.  W.  American  Mortg.  Co.,  70  Minn.  77,  72  N.  W. 
826,  the  courts  went  still  farther,  and  held  the  satisfac- 
tion valid  where  the  debtor  was  insolvent  or  in  fail- 
ing circumstances,  though  there  was  no  express  inten- 
tion to  seek  a  discharge  in  bankruptcy.  In  the  last- 
named  case  it  was  held  that  an  agreement  on  behalf  of 
the  estate  of  a  debtor  supposed  to  be  insolvent  was  good, 
though  it  turned  out  in  fact  that  it  was  solvent.  And 
in  Pettigrew  Mach.  Co.  v.  Harmon,  45  Ark.  290,  the 
principle  that  part  payment  by  a  third  person  makes 
the  accord  valid  was  held  to  govern,  where  the  third 
person  was  one  to  whom  the  debtor  had  assigned  his 
assets  for  the  payment  of  his  debts.    On  principle  and 


CONSIDERATION  97 

on  authority,  therefore,  the  agreement  in  the  present 
case  was  binding;  and,  there  being  no  dispute  on  the 
material  facts,  the  defendant's  sixth  point,  asking  for 
binding  instructions,  should  have  been  affirmed." 

Question  55:  What  were  the  facts,  the  question  presented 
and  the  decision  of  the  court  in  the  above  case  ? 

(Note :  The  exact  question  presented  in  this  case  has  seldom 
been  raised,  and  there  are  very  few  authorities  on  the  point.  See 
note  to  the  above  case  in  11  Lawyer's  Reports  Annotated,  New 
Series,  on  page  1024,  citing  as  in  accord  with  the  above  case, 
Engbretson  v.  Seiberling,  122  Iowa  522;  Seegmiller  v.  Kelley, 
(Iowa)  99  N.  W.  1131;  Herman  v.  Schlesinger,  114  Wis.  382; 
Rice  v.  London  &  N.  W.  Am.  Mort.  Co.,  70  Minn.  77.  Contra, 
Beaver  v.  Fulp,  136  Ind.  595.) 

Case  No.  56.    Bell  v.  Baxter,  86  N.  Y.  195. 

Facts:  The  debtor  agreed  with  all  his  creditors,  and 
they  with  each  other,  to  accept  a  certain  per  cent  in 
settlement  of  their  claims. 

Point  Involved:  Whether  an  agreement  by  a  debtor 
with  his  creditors,  and  they  with  him  and  with  each 
other,  to  accept  a  part  of  their  debts  in  full  settlement,  is 
binding. 

Earl,  J. :  "  *  *  *  An  agreement  to  discharge  the 
whole  of  a  debt  upon  receiving  payment  of  a  portion  is 
nudum  pactum  and  not  binding.  But  to  this  general  rule 
there  are  some  exceptions,  one  of  which  is  a  composition 
agreement,  where  the  creditors  agree  to  take  a  portion 
of  their  debts  in  satisfaction  of  the  whole.  In  such  a 
case  the  agreement  of  each  creditor  is  said  to  furnish  a 
consideration  for  the  agreement  of  every  other  creditor 
who  becomes  a  party  to  the  composition  agreement. 
Each  creditor  enters  into  a  new  agreement  with  the 
debtor,  the  consideration  of  which  is  the  forbearance 
by  all  the  other  creditors  who  become  parties  to  the 
composition  to  insist  upon  their  claims  in  full.     *     *     * ' ' 

Question  56:  What  is  a  composition  with  creditors?  Is  it 
binding  ?  Distinguish  it  from  the  case  of  a  settlement  by  a  debtor 
with  his  creditor. 


98  CONTRACTS 

Sec.  42.    Compromise  and  Settlement. 

Case  No.  57.     McKinley  v.  Watkins,  13  111.  140. 

Facts:  McKinley  and  Watkins  traded  horses.  A 
month  or  two  after  the  trade  the  horse  which  Watkins 
got  died  from  an  unsoundness  that  existed  when  the 
trade  took  place.  It  did  not  appear  that  McKinley  was 
guilty  of  any  deceit  or  that  he  made  any  warranty  with 
respect  to  the  horse  being  sound.  Watkins  complained 
to  McKinley,  and  McKinley  promised  to  give  him  $50 
or  a  $50  horse  if  he  would  not  sue.  This  suit  was  brought 
to  recover  such  $50.  The  trial  court  instructed  the  jury, 
"If  the  jury  believe  from  the  evidence  that  there  was  a 
horse  trade  between  Watkins  and  McKinley,  out  of  which 
a  difficulty  had  grown,  and  that  Watkins  was  threat- 
ening to  sue  McKinley,  and  not  deceiving  him  by  any 
misrepresentations,  and  that  McKinley  rather  than  be 
sued  promised  Watkins  that  he  would  pay  him  $50,  then 
said  promise  is  binding,  and  this  regardless  of  the  ques- 
tion as  to  whether  McKinley  would  or  would  not  have 
been  liable  in  the  suit  which  Watkins  was  threatening 
to  bring  against  him.,,  The  jury  found  for  Watkins, 
and  McKinley  appeals. 

Point  Involved:  Was  the  above  instruction  a  good 
statement  of  the  law? 


Trumbull,  Justice  :  '  *  *  *  *  The  only  question  in 
the  case  is  as  to  the  propriety  of  this  instruction,  and 
in  one  point  of  view  it  is  clearly  erroneous.  It  assumes 
that  the  defendant  would  be  bound  by  his  promise, 
whether  assented  to  by  the  plaintiff  or  not.  Unless  the 
plaintiff  were  bound  on  his  part  not  to  do  the  act  which 
formed  the  consideration  of  the  promise  of  the  defend- 
ant, the  agreement  was  void  for  want  of  mutuality.  The 
promise  of  defendant  to  pay  $50  if  plaintiff  would  not 
sue  him  was  incomplete  till  accepted  by  the  plaintiff. 
Chitty  on  Contracts,  13. 

"A  mere  offer,  not  assented  to,  constitutes  no  con- 


CONSIDERATION  99 

tract;  for  there  must  be  not  only  a  proposal,  but  an  ac- 
ceptance thereof.    Story  on  Contracts,  Par.  377,  378. 

"The  instruction  in  other  respects  is  very  nearly,  if 
not  quite,  correct.  It  assumes  that,  in  order  to  support 
the  promise,  there  must  have  been  a  horse  trade  between 
the  parties,  out  of  which  a  difficulty  had  arisen,  and 
the  plaintiff  was  threatening  to  sue  the  defendant,  and 
not  deceiving  him  by  any  misrepresentations.  If  by 
this  is  to  be  understood  that  the  plaintiff  must  in  good 
faith  have  supposed  that  he  had  a  good  cause  of  action 
against  the  defendant,  growing  out  of  the  horse  trade, 
the  instruction  is  strictly  proper.  It  is  immaterial 
whether  the  plaintiff  could  have  recovered  in  such  action 
or  not.  If  he  honestly  suppose4  that  he  had  a  good 
cause  of  action,  the  compromise  of  such  right  was  a 
sufficient  consideration  to  uphold  a  contract  fairly 
entered  into  between  the  parties,  irrespective  of  the 
question  as  to  who  was  in  the  right.  It  has  often  been 
decided  that  the  compromise  of  a  doubtful  right  is  a 
sufficient  consideration  for  a  promise;  and  it  is  imma- 
terial on  whose  side  the  right  ultimately  turns  out  to 
be,  as  it  must  always  be  on  one  side  or  the  other,  because 
there  can  be  but  one  good  right  to  the  same  thing.  Tay- 
lor v.  Patrick,  1  Bibb,  168;  Russel  v.  Cook,  3  Hill,  504; 
Moore  v.  Fitzwater,  2  Rand.  442;  O'Keson  v.  Barclay, 
2  Penn.  Rep.  531. 

"If  the  plaintiff  was  threatening  to  sue  on  a  claim 
which  he  knew  was  wholly  unfounded,  and  which  he 
was  setting  up  as  a  mere  pretense  to  extort  money  from 
the  defendant,  a  contract  founded  on  a  promise  not  to 
sue  in  such  a  case  would  be  utterly  void.  In  order  to 
support  the  promise  there  must  be  such  a  claim  as  to 
lay  a  reasonable  ground  for  the  defendants  making  the 
promise,  and  then  it  is  immaterial  on  which  side  the 
right  may  ultimately  prove  to  be.  Edwards  v.  Baugh, 
11  Mees.  &  Wels.  Rep.  641 ;  Perkins  v.  Gay,  3  Serg.  & 
Rawle,  331. 

"The  judgment  of  the  circuit  court  is  reversed,  and 


100  CONTRACTS 

the  cause  remanded  for  a  new  trial.    Treat,  C.  J.,  dis- 
sented.   Judgment  reversed." 

Question  57:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case. 

(2.)  Does  it  make  any  difference  whether  the  dispute  settled 
would,  if  not  settled,  have  terminated  in  favor  of  the  now  de- 
fendant ? 

(3.)  Suppose  the  plaintiff  knew  that  his  claim  was  wholly 
unfounded,  would  that  change  the  result  ? 


CHAPTER   FIVE 
LEGALITY  OF  CONTRACTS 

A.  Legality  of  contract  an  essential      D.  Judicial  remedies  in  illegal  agree- 

element.  ments. 

B.  Particular  sorts  of  illegal  agree-       E.  Contracts     whose     objects     are 

ments.  partly  legal,  partly  illegal. 

C.  The  connection  of  the  illegality 

with  the  agreement. 

A.    Legality  of  Contract  an  Essential  Element. 

Sec.  43.    Illegal  Agreements  Void. 

(Note:  As,  will  appear  from  the  following  cases  an  agree- 
ment made  to  violate  the  law  cannot  be  deemed  a  contract.  Le- 
gality, then,  we  may  look  upon  as  an  essential  element  in  con- 
tract. It  follows  that  illegal  agreements  are  not  contracts ;  yet  it 
is  often  convenient,  and  certainly  justified  by  usage,  to  use  the 
term  "illegal  contracts."  It  has  been  suggested  that  contracts 
usually  regarded  as  illegal  agreements  are  divisible  into  two 
classes — those  against  public  policy,  but  otherwise  fair  and  moral, 
and  those  illegal  because  of  a  positive  intent  to  do  an  illegal  act. 
Thus,  a  contract  in  unreasonable  restraint  of  trade  is  void,  yet 
it  is  not  illegal  in  the  sense  that  it  contemplates  any  commission 
of  crime,  and  no  matter  howsoever  closely  interwoven  with  other 
covenants  will  in  no  way  taint  them.  We  may,  however,  for  our 
purposes,  group  all  such  contracts  under  one  heading,  as  illegal. 

Contracts  are  usually  illegal  because  of  their  illegal  object. 
They  may,  however,  be  illegal  not  because  of  their  character,  but 
simply  because  in  their  execution  the  law  is  violated,  the  con- 
tract itself  made  with  the  same  object  under  other  circumstances 
being  enforceable.  Such  are  contracts  made  by  one  without  a 
license  required  by  law.) 

101  j 


102  CONTRACTS 

B.    Particular  Classes  of  Illegal  Agreements. 

(a)  Contracts  whose  objects  are  in  formation  is   in  violation  of 

violation  of  law.  law. 

(b)  Contracts  the  manner  of  whose 

(a)    Contracts  Whose  Objects  Are  in  Violation  of  Law. 

(1)  Contracts    whose     objects     are       (2)  Contracts     whose     objects     are 
against  public  policy  or  the  forbidden  by  statutory  law. 

common  law. 

(1)     Contracts  Whose  Objects  Are  Against  Public  Policy 
or  the  Common  Law. 

§  44.  Contracts  in  restraint  of  trade  §  46.  Contracts  tending  to  corrupt 
and  to  create  monopoly.  the  public  service. 

§  45.  Contracts  in  restraint  of  mar-  §  47.  Contracts  against  morality  in 
riage.  general. 

Sec.  44.    Contracts  in  Restraint  of  Trade  and  to  Create 

Monopoly. 

Case  No.  58.  Diamond  Match  Co.  v.  Roeber,  10G  N. 
Y.  473. 

Facts:  Roeber  sold  his  match  factory  in  New  York 
to  a  corporation  whose  rights  the  Diamond  Match  Com- 
pany acquired  by  assignment.  He  covenanted  as  a  part 
of  his  contract  not  to  manufacture  or  sell  matches  any- 
where in  the  United  States,  except  Nevada  and  Mon- 
tana. When  this  contract  was  made,  the  match  company 
was  engaged  in  manufacturing  matches  in  several  states, 
and  selling  them  throughout  the  United  States.  Roeber, 
after  this  contract,  went  into  the  employ  of  his  vendee, 
remaining  with  the  company  several  years.  He  then 
became  superintendent  of  a  rival  concern  and  also 
opened  up  a  match  store.  This  was  a  suit  for  an  injunc- 
tion against  him. 

Point  Involved:  Is  a  contract  in  restraint  of  trade 
valid?  This  question  being  affirmatively  answered  with 
qualification  that  the  restraint  must  be  reasonable,  what 
restraint  is  reasonable? 

Andrews,  J.,  delivered  the  opinion  of  the  Court: 
«<#     *     *    rpjjg  defen(3ailt  for  his  main  defense  relies 


LEGALITY  103 

upon  the  ancient  doctrine  of  the  common  law  *  *  * 
that  a  bond  in  general  restraint  of  trade  is  void.  *  *  * 
The  tendency  of  recent  adjudications  is  marked  in  the 
direction  of  relaxing  the  rigor  of  the  doctrine  that  all 
contracts  in  general  restraint  of  trade  are  void  irre- 
spective of  special  circumstances. 

' '  The  law  has  for  centuries  permitted  contracts  in  par- 
tial restraint  of  trade,  when  reasonable,  and  in  Homer 
v.  Graves  (7  Bing.  735),  Chief  Justice  Tindall  consid- 
ered a  true  test  to  be  'whether  the  restraint  is  such  only 
as  to  afford  a  fair  protection  to  the  interests  of  the  party 
in  favor  of  whom  it  is  given,  and  not  so  large  as  to  inter- 
fere with  the  interests  of  the  public.     *     *     *' 

''In  the  present  state  of  the  authorities,  we  think  it 
cannot  be  said  that  the  early  doctrine  that  contracts  in 
general  restraint  of  trade  are  void,  without  regard  to 
circumstances,  has  been  abrogated.  But  it  is  manifest 
that  it  has  been  much  weakened  and  that  the  formation 
upon  which  it  was  originally  placed  has,  to  a  consider- 
able extent  at  least,  by  the  change  of  circumstances,  been 
removed. 

"The  covenant  in  the  present  case  is  partial  and  not 
general.  It  is  practically  unlimited  as  to  time,  but  this 
under  the  authorities  is  not  an  objection  if  the  contract 
is  otherwise  good.    It  is  limited  in  space.     *     *     * 

"We  are  of  the  opinion  that  the  covenant,  being  sup- 
ported by  a  good  consideration,  and  constituting  a  par- 
tial and  not  a  general  restraint,  and  being,  in  view  of 
all  the  circumstances  disclosed,  reasonable,  is  valid  and 
not  void.     *     *     *" 

Question  58:  (1.)  What  was  the  extent  of  the  business  of 
the  covenantee  in  the  above  case?  What  was  the  agreement  of 
the  covenanter?  What  was  the  relief  asked  for  in  the  present 
suit  ?    Did  the  Court  grant  it  ? 

(2.)  What  was  the  ancient  doctrine  of  the  common  law  respect- 
ing agreements  in  restraint  of  trade? 

(3.)  What  is  the  test  as  to  whether  the  restraint  imposed  is 
reasonable  ? 


104  CONTRACTS 

(4.)  Is  it  any  objection  that  the  restraint  is  unlimited  in 
respect  to  time? 

(5.)  Do  you  think  any  restraint  of  trade  would  be  good  if  it 
were  totally  unlimited  in  respect  to  space  ? 

(6.)  Suppose  the  present  agreement  had  covered  the  entire 
United  States,  do  you  think  it  would  have  been  enforceable  ? 

(7.)  If  a  contract  in  restraint  of  trade  is  unreasonable  in 
respect  to  the  space  covered,  would  the  courts  enforce  it  over  a 
reasonable  area  ? 

(Note  to  Case  Fifty-eight:  The  question  presented  in  Case 
Fifty-six  is  one  that  has  occasioned  much  divergence  of  au- 
thority. All  courts  agree  that  a  contract  in  unreasonable  re- 
straint of  trade  is  void.  But  whether  it  is  reasonable  does  not 
depend  alone  on  what  is  necessary  to  protect  its  purchaser.  The 
public  interests  are  also  to  be  considered.  Accordingly  some 
courts  hold  that  while  a  covenant  in  restraint  of  trade  involving 
special  skill  and  knowledge  may  cover  (if  reasonable)  a  city,  a 
county,  or  severaj  counties,  it  cannot  cover  the  entire  state.  Thus, 
Lanzit  v.  Mfg.  Co.,  184  111.  326.) 

Case  No.  59.    Moore  v.  Bennett,  140  111.  69. 

Facts:  Moore  and  others  sued  Bennett  and  others 
for  damages  resulting  from  a  breach  of  contract.  The 
parties  were  court  reporters  and  formed  a  combination 
to  control  prices,  establishing  certain  rates.  Bennett 
and  others  cut  these  rates  and  underbid  the  other  mem- 
bers of  the  association.  This  is  a  suit  on  account  of 
such  breach. 

Point  Involved:  Whether  a  combination  to  destroy 
competition  and  arbitrarily  keep  up  prices  is  valid. 

Me.  Justice  Bailey  :  "Whatever  may  be  the  proposed 
objects  of  the  Association  it  clearly  appears,  *  *  * 
that  one  of  its  objects,  if  not  its  leading  object,  is  to  con- 
trol the  prices  to  be  charged  by  its  members  for  sten- 
ographic work,  by  restraining  all  competition  between 
them.    *     *    * 

"While  some  of  the  cases  cited  involve  elements  not 
present  here,  the  determining  circumstances  in  all  of 
them  seem  to  have  been  a  combination  or  conspiracy 


LEGALITY  105 

among  a  number  of  persons  engaged  in  a  particular  busi- 
ness, to  stifle  or  prevent  competition  and  thereby  to  en- 
hance or  diminish  prices  to  a  point  above  or  below  what 
they  would  have  been  if  left  to  the  influence  of  unre- 
stricted competition.  All  such  combinations  are  held  to 
be  contrary  to  public  policy  and  the  courts  therefore 
will  refuse  to  lend  their  aid  to  the  enforcement  of  the 
contracts  by  which  such  combinations  are  sought  to  be 
effected.     *     *     *" 

Question  59:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case. 

(2.)  Would  you  distinguish  the  above  case  from  a  union  of 
laborers  to  bring  about  an  increase  of  wages  ? 

Case  No.  60.  The  Distilling  &  Cattle  Feeding  Co.  v. 
People,  156  111.  448. 

Facts:  This  was  a  quo  warranto  proceeding  brought 
by  the  Attorney  General  against  the  Distilling  and  Cat- 
tle Feeding  Co.,  alleging  that  it  existed  by  reason  of  an 
agreement  for  the  creation  of  a  monopolistic  trust 
entered  into  and  composed  by  various  corporations  and 
individuals  for  the  purpose  of  stifling  competition  and 
creating  monopoly.  The  proceeding  was  brought  for 
the  purpose  of  dissolving  the  said  trust  on  the  ground 
that  it  was  illegal. 

Point  Involved:  Is  a  combination  for  purposes  of 
monopoly  illegal! 

Mr.  Justice  Bailey:  "There  can  be  no  doubt,  we 
think,  that  the  Distillers'  and  Cattle  Feeders'  Trust, 
which  preceded  the  incorporation  of  the  defendant,  was 
an  organization  which  contravened  well-established 
principles  of  public  policy,  and  that  it  was,  therefore, 
illegal.  No  one  who  intelligently  considers  the  scheme 
of  this  trust,  as  detailed  in  the  information,  can  for  a 
moment  doubt  that  it  was  designed  to  be,  and  was  in  fact, 
a  combination  in  restraint  of  trade,  and  that  it  was 
organized  for  the  purpose  of  getting  control  of  the  manu- 
facture and  sale  of  all  distillery  products,  so  as  to  stifle 
competition,  and  to  be  able  to  dictate  the  amount  to  be 


106  CONTRACTS 

manufactured  and  the  price  at  which  the  same  should 
be  sold,  and  thus  to  create,  or  tend  to  create,  a  virtual 
monopoly  in  the  manufacture  and  sale  of  products  of 
that  character.  No  other  business  principles  can  be 
suggested  upon  which  the  development  of  such  an  elab- 
orate and  far-reaching  scheme  can  be  accounted  for. 
No  rational  purpose  for  such  organization  can  be  shown 
consistent  with  an  intention  to  allow  business  to  run  in 
its  normal  channels,  to  give  competition  its  legitimate 
operation,  and  to  allow  both  production  and  prices  to 
be  controlled  by  the  natural  influence  of  supply  and  de- 
mand, and  the  results,  as  shown  by  the  information,  were 
such  as  might  be  anticipated.  The  trust  obtained  pos- 
session of  nearly  all  the  distilleries  and  of  nearly  the 
entire  distillery  product  of  the  United  States,  thus 
enabling  it  to  dictate  prices  and  the  amount  of  produc- 
tion, and  to  thus  draw  to  itself  the  substantial  control 
of  the  distillery  business  of  the  country. 

"Combinations  of  this  character  have  been  frequently- 
made  the  subject  of  judicial  investigation  within  the  last 
few  years,  and  while  the  proceeding  has  most  generally 
been  against  some  one  of  the  corporations  entering  into 
the  trust,  the  courts,  so  far  as  they  have  had  occasion 
to  speak  on  the  subject  at  all,  have  held  such  trusts  to 
be  illegal." 

Question  60:  (1.)  What  was  the  purpose  of  the  above  suit? 
By  whom  was  it  brought?  What  was  the  object  of  the  combi- 
nation involved  ?  What  did  the  Court  say  with  reference  to  the 
legality  of  such  combinations  ? 

(2.)  What  is  the  nature  of  monopoly?  Suppose  an  automobile 
manufacturer  by  his  skill,  industry  and  integrity  virtually 
secures  the  market  for  the  class  of  cars  he  sells,  has  he  a 
monopoly  ?    Distinguish  between  such  a  case  and  the  above  case. 

Sec.  45.    Agreements  in  Restraint  of  Marriage. 

Case  No.  61.     Sterling  v.  Sinnickson,  5  N.  J.  L.  756. 

Facts :  Suit  was  brought  on  the  following  instrument : 
"I,  S.  N.,  am  hereby  bound  to  B.  S.  for  the  sum  of  $1,000, 
provided  he  is  not  lawfully  married  in  the  course  of  6 


LEGALITY  107 

months  from  the  date  hereof.     Witness  my  hand  and 
seal.    Burlington,  May  16, 1816.    (Signed)  S.  N.  (Seal.) " 
Point  Involved:    Whether  a  contract  whose  tendency 
is  to  restrain  freedom  of  marriage  is  binding. 

Kirkpateick,  C.  J.,  delivered  the  opinion  of  the  Court : 
1 1  #  *  *  i<he  contract  was  not  only  useless  and  nuga- 
tory, but  it  was  contrary  to  public  policy. 

"Marriage  lies  at  the  foundation,  not  only  of  indi- 
vidual happiness,  but  also  of  the  prosperity,  if  not  the 
very  existence,  of  the  social  state;  and  the  law,  there- 
fore, frowns  upon,  and  removes  out  of  the  way,  every 
rash  and  unreasonable  restraint  upon  it,  whether  by  way 
of  penalty  or  inducement.  *  *  *  A  bond  *  *  * 
to  marry,  if  there  be  no  obligation  on  the  other  side,  no 
mutual  promise,  or  a  bond  not  to  marry,  are  equally 
against  the  law.  They  are  both  restraints  upon  the  free- 
dom and  choice  and  of  action  in  a  case  where  the  law 
wills  that  all  shall  be  free.     *     *     *" 

Question  61 :  (1.)  State  the  point  involved  in  the  above  case, 
how  it  arose,  and  the  Court 's  decision. 

(2.)  Why  are  contracts  in  restraint  of  marriage,  void? 

(Note :  Contracts  in  restraint  of  the  freedom  of  marriage  are 
generally  held  void.  It  is  held,  however,  that  one  may  devise 
or  bequeath  property  on  condition  that  his  wife  do  not  marry 
again.) 

Sec.  46.    Contracts  Tending  to  Corrupt  the  Public 
Service. 

Case  No.  62.    Mills  v.  Mills,  40  N.  T.  543. 

Facts:  A  contracted  with  B  "that  he  would  give  all 
the  aid  in  his  power  and  spend  such  reasonable  time  as 
may  be  necessary,  and  generally  use  his  utmost  influence 
and  exertions  to  procure  the  passage  into  a  law  of  the 
said  bill  heretofore  introduced  into  the  senate,  etc.,,  He 
now  sues  for  his  fees.  Defense,  that  the  agreement  was 
illegal. 

Point  Involved:  Whether  an  agreement  to  use  influ- 
ence and  to  exert  one's  self  to  secure  the  passage  of  a 


108  CONTRACTS 

particular  law  in  behalf  of  private  interests  is  against 
public  policy. 

Hunt,  C.  J.,  delivered  the  opinion  of  the  Court: 
<<•  *  *  jf.  js  nof.  SUggested  that  the  plaintiff  was  a 
professional  man  whose  calling  it  was  to  address  leg- 
islative committees.  It  is  not  suggested  he  had  any 
claims  of  right,  which  he  proposed  to  advocate.  *  *  * 
To  procure  the  passage  of  such  a  law  for  the  benefit  of 
the  defendant  he  undertook  to  use  his  utmost  influence 
and  exertions.  This  contract  is  void  as  against  public 
policy.  It  is  a  contract  leading  to  secret,  improper  and 
corrupt  tampering  with  legislative  action.  *  *  *  It 
is  not  necessary  to  adjudge  that  the  parties  stipulated 
for  corrupt  action,  or  that  they  intended  that  secret  and 
improper  resort  should  be  had.  It  is  enough  that  the 
contract  tends  directly  to  those  results.  It  furnishes  a 
temptation  to  plaintiff  to  resort  to  corrupt  means  or 
improper  devices  to  influence  legislative  action.    *    *    * ' ' 

Qiiestion  62:  (1.)  "What  was  the  nature  of  the  agreement  on 
which  the  above  case  is  based  ?    What  did  the  Court  hold  ? 

(2.)  Suppose  in  the  above  case  the  party  employed  had  firmly 
believed  in  the  merits  of  the  law  proposed,  would  this  make  any 
difference  ? 

(3.)  The  business  men  of  a  certain  city  compose  an  Associa- 
tion of  Commerce.  One  of  the  objects  of  the  association  is  to 
procure  the  passage  of  laws  which  the  members  of  the  associa- 
tion regard  as  beneficial  to  commerce.  They  employ  A,  an  attor- 
ney, to  draft  bills  for  introduction  into  the  legislature  and  to 
appear  before  committees  and  argue  in  behalf  of  such  proposed 
measures.  A,  having  performed  such  services,  sues  for  his 
salary.    Can  he  recover?    Why? 

Case  No.  63.  Kansas  City  Paper  House  v.  Foley  Rwy. 
Print  Co.,  85  Kan.  678,  39  L.  R  A,  new  series,  747. 

Facts:  The  K.  C.  Paper  House  sued  the  Foley  Rwy. 
Printing  Co.  upon  a  promissory  note.  The  defendant 
claimed  a  credit  of  $500,  which  it  claimed  the  plaintiff 
owed  Foley,  the  President  of  the  defendant,  and  which 
such  President  had  transferred  to  it.    The  only  question 


LEGALITY  109 

involved  was  the  validity  of  this  $500  credit.  The  con- 
tract upon  which  Foley  claimed  this  credit  was  made 
by  the  plaintiff  company  with  Foley,  under  which  Foley 
was  to  sell  paper  and  other  material  to  the  state,  the 
evidence  going  to  show  that  his  compensation  was  to  be 
contingent  upon  his  success. 

Point  Involved:  The  legality  of  contracts  of  agency 
by  which  the  agent  is  to  sell  goods  to  a  public  body,  his 
compensation  depending  on  his  success. 

Mason,  J. :  * '  *  *  *  There  was  some  evidence  that 
the  contract  contemplated  a  payment  for  the  exertion 
of  personal  and  political  influence  upon  members  of  the 
executive  council,  and  that  the  services  rendered  were  of 
that  character.  If  that  was  the  case,  the  contract  was, 
of  course,  void.  But  there  was  also  testimony  that  Foley 
was  employed  simply  as  an  ordinary  salesman,  because 
of  his  experience  in  using  and  buying  paper  and  other 
material  handled  by  the  plaintiff,  and  that  his  efforts 
were  in  accordance  with  that  employment,  and  were  con- 
fined to  exhibiting  samples  and  " talking  up"  the  goods 
and  the  responsibility  of  the  house.  If  that  was  the  case 
the  contract  was  valid.  In  this  aspect  the  question  is 
merely  one  of  fact  to  be  decided  by  a  tribunal  which 
sees  and  hears  the  evidence  (the  court  below). 

"The  evidence  suggested,  but  perhaps  did  not  abso- 
lutely determine,  that  Foley's  compensation  was  to  be 
contingent  upon  the  procuring  of  the  state  contract. 
There  is  a  conflict  of  judicial  opinion  as  to  whether 

that  circumstance  should  stamp  the  contract  as  illegal. 

#    •    • 

(Here  the  Court  reviews  certain  cases  holding  such 
contracts  on  commission  illegal,  but  distinguishes  such 
cases  by  showing  that  they  involve  some  additional  ele- 
ment, such  as  personal  and  corrupt  influence  with  the 
members  of  the  governmental  body.) 

"The  fact  that  the  compensation  of  a  salesman,  em- 
ployed to  sell  goods  to  the  public,  depends  upon  his  suc- 
cess may  tend  to  show  a  purpose  to  use  illegal  means, 
or  a  probability  that  such  means  will  be  used;  but  we 


110  CONTRACTS 

do  not  think  that  it  should  be  regarded  as  conclusive 
in  either  point,  nor  that  in  and  of  itself  it  should  be 
deemed  to  characterize  the  employment  as  illegal.  (Cit- 
ing authorities.)  *  *  *  Many  of  the  cases  in  these 
collections  involve  contracts  for  influencing  legislation, 
which  are  not  entirely  analogous  to  those  for  the  sale  of 
goods,  and  may  well  be  regarded  as  subject  to  a  more 
stringent  rule.     *     *     *" 

Question  63:  (1.)  State  the  facts,  the  point  involved  and 
the  Court's  decision  in  the  above  case. 

(2.)  What  element  would  render  such  a  contract  illegal? 

(3.)  The  Court  says  that  contracts  to  procure  legislation  are 
subject  to  a  more  stringent  rule  than  contracts  to  secure  the  sale 
of  goods  to  the  government.    Why  ? 

Sec.  47.    Contracts  Against  Public  Policy  in  General. 

Case  No.  64.  Wilson  v.  Carnley  (1908),  1  K.  B.  729, 
1  British  Ruling  Cases,  901. 

Facts:  Plaintiff's  suit  is  for  a  breach  of  promise  of 
marriage  made  by  defendant.  Defendant  was  at  the 
time  a  married  man  and  plaintiff  knew  it.  The  defend- 
ant's wife  having  died,  the  defendant  refuses  to  carry 
out  his  agreement  to  marry  plaintiff,  and  plaintiff  sues. 

Point  Involved:  Whether  a  promise  of  a  married 
man,  known  to  be  married  by  the  promisee,  to  marry 
another  woman  upon  becoming  qualified  to  do  so,  is  en- 
forceable. 

Vaughan  Williams,  L.  J. :  l *  *  *  *  I  have  no  doubt 
that  this  was  a  contract  which  had  a  tendency  to  make 
the  defendant,  who,  in  the  lifetime  of  his  wife,  had 
promised  to  marry  another  woman,  do  something  which 
was  in  contravention  of  the  obligations  which  are  rec- 
ognized in  this  country  as  owing  from  a  husband  to  his 
wife.  It  is  sufficient  to  say  that  this  is  obviously  a  con- 
tract which  a  husband  in  his  wife's  lifetime  could  not 
enter  into  without  being  disloyal  to  his  wife.  When 
the  plaintiff's  counsel  during  the  argument,  in  mitiga- 
tion, I  think,  of  the  husband's  conduct,  adverted  to  the 


LEGALITY  111 

fact  that  at  the  time  when  the  contract  was  made  the  hus- 
band and  the  plaintiff  both  thought  that  the  wife  was 
going  to  die  soon,  I  could  not  help  feeling  that  such  a 
contract  as  this  might  make  the  wish  the  father  to  the 
thought.  But,  however  that  may  be,  it  is  a  contract 
against  public  policy,  as  tending  to  make  the  husband 
disregard  the  acknowledged  rules  of  morality  as  to  mar- 
ried life,  and  therefore  cannot  be  enforced.     *     *     *" 

Question  64:  Why  should  the  above  agreement  be  deemed 
illegal? 

(2)     Contracts  Whose  Objects  Are  Forbidden  by  Statu- 
tory Law. 

§  48.  Wager  agreements.  §  49.  Usurious  agreements. 

Sec.  48.    Wager  Agreements. 

Case  No.  65.     Bernard  v.  Taylor,  23  Oregon,  416. 

Facts:  Suit  by  Bernard  to  recover  from  a  stake- 
holder the  sum  of  $650  deposited  by  Bernard  as  a  wager 
on  the  outcome  of  a  footrace,  and  demanded  by  him  of 
the  stakeholder  before  the  race  was  run. 

Point  Involved:  Whether  a  wagering  agreement  is 
valid.  Whether  the  court  will  relieve  one  from  the  con- 
sequences of  his  illegal  agreement. 

Lord,  C.  J. :  "*  *  *  The  first  contention  for  the 
defendant  is  that  wagers  or  wagering  contracts  upon 
indifferent  subjects  are  valid  in  this  state,  by  force  of 
the  common  law,  except  when  prohibited  by  statute. 
There  can  be  no  doubt  that  wager  contracts  upon  indif- 
ferent matters  were  valid  at  common  law.  *  *  *  gut 
all  wagers  that  tended  to  a  breach  of  the  peace,  or  to 
injure  the  feelings,  character  or  interests  of  third  per- 
sons, or  which  were  against  the  principles  of  morality  or 
of  sound  policy,  were  void  at  common  law.  *  *  *  And 
all  wagers  in  contravention  of  the  positive  provisions  of 
any  statute  are  also  void.  Of  late  years  by  legislation 
and  judicial  decision  the  hostility  to  wager  a  of  every 


112  CONTRACTS 

nature  has  been  marked.  This  is  doubtless  due  to  the 
increase  of  betting  and  the  evil  consequences  resulting 
therefrom.     *     *     *" 

(The  court  allowed  the  recovery  of  the  money  from 
the  stakeholder  on  the  ground  that  the  suit  was  to  re- 
scind an  illegal  agreement  from  which  plaintiff  attempted 
to  withdraw  while  it  was  entirely  executory  on  the  other 
side.  See  Subdivision  D,  post,  for  a  discussion  of  this 
principle.) 

Question  65:  "Were  wagers  illegal  by  the  common  law  ?  What 
is  the  law  now?  If  one  deposits  money  for  wagering  purposes 
with  a  stakeholder,  can  he  recover  it  back  if  he  demands  it  before 
the  money  is  paid  over  to  the  other  party  by  the  stakeholder  ? 

Case  No.  66.    Pope  v.  Hanke,  155  111.  617. 

Facts:  Suit  on  notes.  Defense,  that  they  were  given 
in  settlement  of  a  gambling  transaction,  consisting  in  a 
speculation  on  the  future  price  of  grain.  The  court  found 
that  the  transaction  consisted  in  the  form  of  contracts 
for  the  future  sale  and  delivery  of  grain,  but  with  the 
understanding  that  no  grain  was  to  be  called  for  or  de- 
livered, but  a  settlement  was  to  be  effected  between  the 
parties  on  the  basis  of  the  difference  between  the  con- 
tract rate  and  the  market  price  on  the  day  of  delivery. 

Point  Involved:  Whether  an  agreement  in  form  of  a 
sale  of  property,  but  in  spirit  a  speculation  on  the  future 
price  of  such  property,  is  valid. 

Me.  Justice  Mageudee  delivered  the  opinion  of  the 
Court:  "*  *  *  The  transactions  *  *  *  were  mere 
speculations  upon  the  future  prices  of  grain.  The  con- 
tracts for  the  delivery  and  sale  of  grain  in  the  future 
were  not  made  with  the  intention  that  any  grain  should 
be  received  or  delivered,  but  with  the  understanding  that 
each  transaction  should  be  settled  by  the  payment  of  the 
difference  between  the  contract  price  and  the  market  price 
at  the  time  fixed.  It  is  well  settled  that  all  such  contracts 
are  mere  wagers  or  gambling  contracts  and  are  void. 
*  *  *  Such  is  the  law  of  Missouri  where  the  notes 
sued  on  are  admitted  to  have  been  executed.  *  *  * 
In  Crawford  v.  Spencer,  92  Mo.  498,  the  Supreme  Court 


LEGALITY  113 

of  Missouri  said:  'The  law  is  now  settled  that  a  sale  of 
goods  to  be  delivered  in  the  future  is  valid — though  there 
is  an  option  as  to  the  time  of  delivery  and  though  the 
seller  has  no  other  means  of  getting  them  than  to  go 
into  the  market  and  buy  them;  but  if  under  the  guise 
of  such  a  contract,  valid  on  its  face,  the  real  purpose 
and  intention  of  the  parties  is  merely  to  speculate  on 
the  rise  or  fall  of  prices,  and  the  goods  are  not  to  be 
delivered,  but  the  difference  between  the  contract  and 
market  price  only  paid,  then  the  transaction  is  a  wager 
and  the  contract  is  void.'  Such  also  is  the  law  in  Illi- 
nois, where  the  present  suit  has  been  brought.  *  *  * 
"This  intention  (merely  to  speculate)  may  be  estab- 
lished not  merely  by  the  assertions  of  the  parties,  but 
by  all  the  attending  circumstances.  (Defendant)  had  a 
mill  at  Trenton,  but  its  capacity  was  only  200,000  bushels 
per  annum;  and  yet  *  *  *  the  volume  of  transac- 
tions between  the  parties  *  *  *  amounted,  in  a 
period  of  a  little  more  than  three  months,  to  2,190,000 
bushels  of  wheat,  1,240,000  bushels  of  corn,  and  60,000 
bushels  of  oats.  *  *  *  The  question  of  intention  is 
a  question  for  the  jury,  to  be  determined  by  a  considera- 
tion of  all  the  evidence.    *     *    *" 

Question  66:  (1.)  State  the  facts,  the  question  presented 
and  the  opinion  of  the  Court  in  the  above  case. 

(2.)  Is  a  sale  of  goods  which  are  to  be  acquired  by  the  seller 
in  the  future,  valid?. 

(3.)  If  the  parties  honestly  contemplate  a  sale  at  the  time 
of  the  agreement,  do  you  think  it  would  be  illegal  for  them  to 
agree  at  the  time  of  the  delivery,  to  settle  by  the  payment  of 
money  1 

Sec.  49.    Usurious  Agreements. 

Case  No.  67.    In  Re  Fishel,  192  Fed.  412. 

Facts:  Proceedings  in  bankruptcy.  In  question, 
whether  certain  loans  made  to  the  bankrupts  were  usu- 
rious. The  contract  governing  the  loan  called  for  inter- 
est on  the  money  loaned  and  commissions  on  collateral. 


114  CONTRACTS 

"  Contemporaneous  construction,  evidenced  by  the  ac- 
tions of  the  contracting  parties  before  breach,  shows  i 
the  discount  company  in  the  exact  position  of  a  lender 
on  collateral  with  legal  title  to  the  same,  in  effect  a 
chattel  mortgage,  charging  by  agreement  before  loan  6 
per  cent,  on  the  loan  and  5  per  cent,  on  the  face  of  the 
collateral,  equivalent  on  a  90-day  accommodation  to  over 
25  per  cent  per  annum."  The  loan  is  governed  by  the 
laws  of  New  York,  which  is  stated  in  the  opinion. 

Point  Involved:  The  character  of  usury  and  the 
penalty  therefor  under  the  laws  of  New  York. 

Hough,  J. :  "*  *  *  Section  373  of  the  general 
business  law  (Consol.  Laws  1909,  c.  20)  declares  that: 

(i  i£n  #  #  #  contracts  or  securities  *  *  *  all 
deposits  of  goods  or  other  things  *  *  *  whereupon 
or  whereby  there  shall  be  reserved  or  taken,  or  secured 
or  agreed  to  be  reserved  or  taken  any  greater  sum 
*  *  *  or  value,  for  the  loan  *  *  *  of  any  money 
(than  six  per  cent,  per  annum)  shall  be  void.' 

" Language  could  not  be  broader  or  more  plain;  and, 
under  it,  courts  are  bound  to  inquire  whether  by  any  de- 
vice, however  circuitous,  or  under  any  name,  however 
fair  in  sound,  a  borrower  is  surrendering  and  a  lender 
exacting  more  for  the  use  of  money  than  an  equivalent 
of  the  legal  rate  of  interest,  whether  paid  in  money  or 
otherwise. 

u  Considering  the  attitude  of  most  states  and  coun- 
tries on  this  subject,  the  New  York  act  seems  archaic, 
but  that  can  make  no  difference  in  the  duty  of  courts. 
Since,  however,  in  order  to  reveal  usury,  it  may  be  nec- 
essary by  oral  evidence  to  prove  the  falsity  of  paper 
contracts  fair  and  legal  on  their  face,  experience  has 
shown  that  the  statute  contains  a  temptation  to  ras- 
cally borrowers  to  avoid  payment  of  just  debts  by  offer- 
ing usury  as  a  defense.  On  this  knowledge  of  human 
weakness  are  founded  certain  rules  of  decision — judge 
made,  but  long  since  established  beyond  cavil. 

"Thus  the  burden  is  on  him  who  alleges  usury  to 


LEGALITY  115 

prove  it  by  clear  and  satisfactory  evidence — the  offense 
is  largely  one  of  intent — and  the  unlawful  usuance  must 
be  given  and  retained  in  pursuance  of  an  agreement, 
mutual  and  existing  at  the  inception  of  the  transaction. 
Rosenstein  v.  Fox,  150  N.  Y.  354,  44  N.  E.  1027,  and  cases 
cited. 

"It  also  happens  not  infrequently  that  the  lender  does 
more  than  merely  hire  out  his  money,  and  for  such  addi- 
tional service  he  is  entitled  to  be  paid,  if  the  service 
be  actual,  and  whatever  objection  there  may  be  to  his 
rate  of  charge,  it  cannot  be  based  upon  the  usury  statute, 
unless  the  whole  transaction  is  plainly  but  a  cover  for 
unlawful  lending.  Re  Wilde's  Sons  (D.  C),  133  Fed. 
562,  and  cases  cited. 

"But  if,  when  all  the  evidence  and  explanations  have 
been  considered,  it  clearly  appears  that  all  the  lender 
did  or  expected  to  do  was  to  loan,  and  all  the  borrower 
got  or  expected  to  get  was  money,  then  any  word  or 
phrase,  any  collateral  or  contemporaneous  agreement  by 
virtue  of  which  more  than  the  amount  of  the  lawful  rate 
flows  into  the  pockets  of  the  lender,  must  and  should  be 
swept  aside,  and  the  intended  and  agreed  upon  usury 
denounced.  See  especially  Heidenheimer  v.  Mayer,  42 
N.  Y.  Super.  Ct.  506,  affirmed  74  N.  Y.  607." 

Question  67:     (1.)     What  is  usury? 

(2.)  What  is  the  penalty  under  the  laws  of  New  York? 

(3.)  Can  a  lender  charge  a  "commission"  on  his  own  money 
where  the  per  cent  is  thus  with  the  interest  raised  to  more  than 
the  legal  rate? 

(Note  on  Case  66:  The  laws  of  usury  differ  widely  in  the 
different  states.  The  contract  rate  and  the  penalty  varies,  but  in 
most  states  the  usury  does  not  make  the  principal  ^unrecoverable 
but  either  causes  (1)  a  loss  of  the  excess  interest,  or  (2)  a 
loss  of  all  interest;  or  (3)  a  loss  of  all  interest  and  some  portion 
of  the  principal.) 

(b)    Contracts  Legal  in  Their  Objects,  but  Illegal  by  the 
Manner  of  Their  Formation. 


116  CONTRACTS 

§  50.  Agreements  made  on  Sunday.      §  51.  Agreements    made    by    un- 
licensed parties. 

Sec.  50.    Agreements  Made  on  Sunday. 

Case  No.  68.     Richmond  v.  Moore,  107  111.  429. 

Facts:  This  was  a  contract  of  employment  for  serv- 
ice alleged  to  have  been  broken.  Damages  were  asked 
for  such  breach.  Defense:  That  the  supposed  contract 
was  void,  being  made  on  Sunday. 

Point  Involved:  Whether  a  contract  made  on  Sunday 
is  illegal. 

Mr.  Justice  Walker  delivered  the  opinion  of  the  Court : 
"The  common  law  did  not  prohibit  the  making  of  such 
contracts.  In  Drury  v.  Deputaire,  Taunt.  136,  Lord 
Manfield  *  *  *  said:  'It  does  not  appear  that  the 
common  law  ever  considered  these  contracts  as  void 
which  were  made  on  Sunday.'  Judgment  was  accord- 
ingly given  for  the  price  of  a  horse  sold  on  that  day. 
*  *  *  The  doctrine  that  contracts  made  on  Sunday 
are  void  depends,  therefore,  alone  on  statutory  enact- 
ments, and  in  various  states  of  the  Union  the  statutes 
vary  in  language  or  substance.     *     *     * 

"The  29th  Car.  II,  Chap.  257,  seems  to  be  the  basis 
of  the  various  enactments  of  the  Union.  It  is  this :  "  That 
no  tradesman,  artificer,  workman,  laborer,  or  other  per- 
son whatsoever,  shall  do  or  exercise  any  worldly  labor, 
business  or  work  on  the  Lord's  day.'-  It  contains  excep- 
tions of  which  are  works  of  necessity  or  charity.  *  *  * 
The  offense  by  that  statute  is  the  performance  of  labor 
or  business,  and  by  ours  it  is  the  disturbance  of  the 
peace  and  good  order  of  society.,,  (The  Court  holds 
the  Illinois  statute  to  be  a  more  liberal  statute  than  the 
English  statute,  and  decided  that  the  above  contract  is 
enforceable.  In  many  states,  however,  the  statute  is  a 
virtual  adoption  in  its  strictness  of  the  British  statute.) 

Question  68:  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  the  above  case? 

(2.)  What  contracts  made  or  to  be  performed  on  Sunday  are 
valid  in  every  jurisdiction? 


LEGALITY  117 

Sec.  51.    Agreements  Made  Without  Required  License. 

Case  No.  69.    Buckley  v.  Humason,  50  Minnesota,  195. 

Facts:  Defendants  sold  to  Augustus  K.  Barnum  cer- 
tain leasehold  property,  situated  in  Chicago,  called  the 
Ogden  Flats,  in  exchange  for  property  in  St.  Paul,  valued 
at  $175,000.  Plaintiff  Buckley  was  employed  by  defend- 
ants as  their  broker  at  Chicago,  and  he  there  procured 
the  purchaser  and  acted  as  their  agent  in  the  trans- 
action. This  suit  is  for  $4,375  commission  for  his  serv- 
ices. An  ordinance  was  in  force  in  the  City  of  Chicago, 
that  it  should  be  unlawful  for  any  person  to  exercise 
within  the  city  the  business  of  real  estate  broker  with- 
out a  license,  and  provided  the  amount  to  be  paid,  and 
subjected  violators  to  a  pecuniary  •  penalty  for  each 
violation.  Plaintiff  had  no  such  license  during  the  nego- 
tiation and  exchange. 

Point  Involved:  Whether  one  who  is  engaged  with- 
out a  license  in  a  business  in  which  the  government  re- 
quires a  license  for  purposes  of  regulation  can  recover 
his  fees  under  agreements  made  by  him  while  so  un- 
licensed. 

Vanderburgh,  J. : "  •  *  *  The  particular  transaction 
in  question  was  therefore  in  violation  of  law,  unless  he 
was  duly  licensed,  which  was  not  shown.  On  the  contrary, 
the  answer  alleges,  and  it  stands  admitted,  for  want  of 
a  reply,  that  the  plaintiff  was  not  duly  licensed  as  a 
broker.  The  plaintiff  cannot,  therefore,  recover  his  com- 
missions. Hustis  v.  Pickands,  27  111.  Ap.  270;  Johnson 
v.  Hulings,  103  Pa.  St.  501;  Holt  v.  Green,  73  Pa.  St.  198. 

"Business  transactions  in  violation  of  law  cannot  be 
made  the  foundation  of  a  valid  contract ;  and  the  general 
rule  is  that  where  a  statute  makes  a  particular  business 
unlawful  generally,  or  for  unlicensed  persons,  any  con- 
tract made  in  such  business  by  one  not  authorized  is 
void.     *     *     *" 

Question  69:  What  were  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case  ? 


118  CONTRACTS 

(Note:  The  above  decision  is  in  line  with  the  weight  of  au- 
thority. See  Ames  v.  Gilman,  51  Mass.  239  (unlicensed  attorney 
at  law  cannot  recover  fees) ;  Deaton  v.  Lawson,  40  Wash.  486, 
2  L.  R.  A.  N.  S.  392  (unlicensed  physician  cannot  recover  fees)  ; 
Levison  v.  Boas,  150  Cal.  185,  12  L.  R.  A.  N.  S.  575  (unlicensed 
pawnbroker  cannot  claim  fees  or  lien  on  pledges).  It  is  brought 
out  by  the  cases  on  this  subject  that  where  there  is  a  law  penal- 
izing an  act  it  impliedly  prohibits  it,  and  contracts  based  thereon 
are  void.) 

C.   The  Connection  of  the  Illegality  With  the  Agreement. 

§  52.  Knowledge  by  one  party  that  companied  by  encourage- 
other  party  intends  illegal  ment  or  assistance  to  the 
consequences.  other    to    carry    out    illegal 

§  53.  Knowledge   by  one  party  ac-  purpose. 

Sec.  52.    Knowledge  by  One  Party  that  Other  Party 
Intends  Illegal  Consequences. 

(a)  Knowledge  of  the  other's  in-  (b)  Knowledge  of  the  other's  in- 
tent to  commit  offense  of  tent  to  commit  offense  of 
lesser  magnitude.                                       greater  magnitude. 

(a)    Knowledge  of  the  Other's  Intent  to  Commit  Of- 
fense of  Lesser  Magnitude. 

Case  No.  70.     Graves  v.  Johnson,  179  Mass.  53. 

Facts:  A  sold  liquors  to  B,  knowing  that  B  intended 
to  resell  contrary  to  law,  but  he  was  wholly  indifferent 
what  use  B  made  of  the  liquors.  This  is  a  suit  for  the 
price  of  such  liquors. 

Point  Involved:  Whether  a  contract  in  other  respects 
fully  in  compliance  with  law  is  rendered  illegal  merely 
because  one  of  the  parties  thereto,  otherwise  not  in 
fault,  knows  that  the  other  intends  to  make  use  of  the 
results  of  the  contract  to  commit  a  crime  of  lesser  mag- 
nitude. 

Holmes,  C.  J.,  delivered  the  opinion  of  the  Court: 
n*  *  *  jn  our  0pinion  a  sale  otherwise  lawful  is  not 
connected  with  subsequent  unlawful  conduct  by  the  mere 


LEGALITY  119 

fact  that  the  seller  correctly  divines  the  buyer's  unlawful 
intent  closely  enough  to  make  the  sale  unlawful.  *  *  * 
The  defendant  (B)  was  free  to  change  his  mind,  and 
there  was  no  communicated  desire  of  the  plaintiff's  to 
co-operate  with  the  defendant's  present  intent.  *     *     *" 

Question  70:  (1.)  State  the  facts,  the  question  presented 
and  the  decision  of  the  Court  in  the  above  entitled  case. 

(2.)  A,  owning  a  house,  leases  it  to  B,  knowing  that  B  intends 
to  use  it  for  illegal  or  immoral  purposes,  but  he  does  nothing  to 
encourage  or  assist  such  illegal  purpose,  and  is  indifferent 
what  use  B  makes  of  the  premises.  Is  the  lease  void?  Can  A 
recover  the  rent  ? 

(Note:  Answer  to  Question  (2.).  On  this  point  there  is  some 
conflict  of  authority.  See  the  late  cases  of  Ashford  v.  Mace,  — 
Ark.  — ,  39  L.  E.  A.  N.  S.  1104,  and  Harbison  v.  Shirley,  139 
Iowa,  605,  19  L.  R.  A.  N.  S.  662,  holding  that  the  landlord's 
knowledge,  if  there  is  no  connivance  of  any  sort,  will  not  make 
the  lease  void.  The  first  case  bases  its  decision  on  the  ground 
that  uses  of  premises  for  gambling  and  bawdy  house  purposes 
are  classed  as  offenses  of  lesser  magnitude  within  the  distinctions 
taken  by  the  cases.  But  many  courts  hold  such  leases  void. 
There  would  seem  to  be  a  distinction  between  a  sale  of  goods  in 
which  the  vendor  parts  with  all  property  and  control  and  a 
rental  of  premises  of  which  he  remains  the  landlord.  See  Fields 
v.  Brown,  188  111.  111.  The  subject  is  governed  by  statute  in 
some  states.) 

(b)  Knowledge  of  the  Other's  Intent  to  Commit  Of- 
fense of  Greater  Magnitude. 

Case  No.  71.    Hanauer  v.  Doane,  12  Wall.  342. 

Facts:  Suit  to  recover  the  price  of  supplies  and  com- 
missary stores  for  the  Confederate  army.  Defense, 
illegality.  The  lower  court  instructed  the  jury  that  the 
seller's  knowledge  of  defendant's  purpose  was  imma- 
terial.   Appeal. 

Point  Involved:  Whether  a  contract  in  other  respects 
fully  in  compliance  with  law  is  rendered  illegal  merely 
because  one  of  the  parties  thereto,  otherwise  not  in  fault, 
knows  that  the  other  intends  to  make  use  of  the  results 


120  CONTRACTS 

of  the  contract  to  commit  a  crime  of  "  greater  magni- 
tude;" 

Mr.  Justice  Bradley  delivered  the  opinion  of  the 
Court:  "•  *  *  In  this  instruction  we  think  the  judge 
erred.  With  whatever  impunity  a  man  may  lend  money 
or  sells  goods  to  another  who  he  knows  intends  to  devote 
them  to  a  use  *  *  *  of  inferior  criminality,  he  cannot 
do  it  *  *  *  when  he  knows  or  has  every  reason  to  be- 
lieve that  such  money  or  goods  are  to  be  used  for  the 
perpetration  of  a  heinous  crime,  and  that  they  were  pro- 
cured for  that  purpose.  *  *  *  Can  a  man  furnish 
another  with  the  means  of  committing  murder  or  any 
abominable  crime,  knowing  that  the  purchaser  procures 
them  and  intends  to  use  them  for  that  purpose  and  then 
pretend  that  he  is  not  a  participator  in  the  guilt?  Can 
he  wrap  himself  up  in  his  own  selfishness  and  heartless- 
ness  and  say,  'What  business  is  that  of  mine?  Am  I 
the  keeper  of  another  man's  conscience?'  No  one  can 
hesitate  to  say  that  such  a  man  *  *  *  is  almost,  if 
note  quite,  as  guilty  as  the  principal  offender. 

"No  crime  is  greater  than  treason.     *     *     *" 

Question  71:  State  the  facts,  the  question  presented  and  the 
decision  of  the  Court  in  the  above  case. 

Sec.  53.  Knowledge  by  One  Party  Accompanied  by  En- 
couragement or  Assistance  to  the  Other  to  Carry  Out 
Illegal  Purpose. 

Case  No.  72.    Kohn  v.  Melcher,  43  Fed.  R.  641. 

Facts:  K.  &  A.  were  wholesale  liquor  dealers  at  Rock 
Island,  Illinois.  M.  was  a  druggist  at  Atlantic,  Iowa, 
holding  a  permit  to  sell  spiritous  liquors  for  medicinal 
purposes.  Under  cover  of  this  permit  and  in  violation 
of  law,  M.  was  virtually  engaged  in  a  saloon  business, 
obtaining  his  liquor  from  K.  &  A.  M.  was  required  to 
make  monthly  statements  to  the  authorities,  and  in  these 
he  falsified  the  amounts  of  his  sales  and  profits.  K.  & 
A.  knew  of  M.  's  illegal  practices,  and  in  order  to  aid  him 


LEGALITY  121 

in  the  same  furnished  him  from  time  to  time  two  sets 
of  invoices,  one  showing  the  true  purchase  price,  and 
the  other,  which  he  might  show  to  the  authorities,  a 
higher,  fictitious  price.  They  also  shipped  a  part  of  the 
liquors  to  M.  under  a  fictitious  name,  and  also  enclosed 
a  part  of  the  liquors  in  boxes  and  barrels,  labeling  them 
as  containing  hardware,  crockery,  etc.  K.  &  A.  bring  suit. 
Defense,  illegality. 

Point  Involved:  Whether  a  contract  that  would 
otherwise  be  legal  is  rendered  illegal  by  the  purpose  of 
one  party  to  make  an  illegal  use  thereof,  accompanied 
with  an  encouragement  or  connivance  in  such  illegal  use 
by  the  other  party. 

Shikas,  J.,  delivered  the  opinion  of  the  Court:  "To 
recover  the  balance  due  from  defendant  and  resulting 
from  transactions  of  the  nature  indicated,  the  plaintiffs 
now  ask  the  aid  of  this  Court: 

"It  is  refused.     *     *     * 

"The  statute  of  Iowa  expressly  forbids  a  registered 
pharmacist  from  selling  intoxicating  liquors  as  bever- 
ages. *  *  *  The  plaintiffs  and  defendant  combined 
together  to  evade  this  statute,  resorting  to  fraud  and 
perjury  to  accomplish  that  purpose.  *  *  *  The 
ground  upon  which  the  plaintiff's  right  of  action  for  the 
liquors  sold  is  defeated  is  that  the  plaintiffs  sold  the 
liquors  to  the  defendant,  *  *  *  wen  knowing  that 
the  statute  of  Iowa  *  *  *  forbade  such  pharmacist 
from  selling  intoxicating  liquors  as  a  beverage,  and  in 
order  to  aid  defendant  in  evading  the  statute  they  for- 
warded the  liquors  in  concealed  packages,  to  a  fictitious 
consignee,  and  furnished  false  invoices  as  a  protection 
to  defendant  in  making  the  false  statement  sworn  to  by 
him,  thus  actively  aiding  defendant  in  the  commission 
of  perjury  as  well  as  in  other  violations  of  law.     *     *     * 

1 '  The  conclusion  reached  is  that  plaintiffs  cannot  main- 
tain their  action." 

Question  72:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  the  above  case. 


122  CONTRACTS 

D.    Judicial  Remedies  in  Illegal  Agreements. 

(a)  No  remedy  by  way  of  enforce-       (b)  Judicial    rescission     of     illegal 
ment.  agreement. 

(a)    No  Remedy  by  Way  of  Enforcement. 

Sec.  54.    Courts  Will  Not  Enforce  an  Illegal  Agreement. 
("Ex  Turpi  Contractu  non  Oritur  Actio.") 

Case  No.  73.    Goodrich  v.  Tenney,  144  111.  422. 

Facts:  Suit  brought  to  enforce  an  accounting  for 
and  payment  of  money  alleged  to  have  been  earned  by 
services  performed  under  a  contract  found  by  the  court 
to  have  been  made  for  an  illegal  purpose. 

Point  Involved:  Whether  the  Court  will  enforce  an 
illegal  agreement. 

Mr.  Justice  Shope  :  *  *  *  *  *  Courts  of  Justice  will 
not  enforce  the  execution  of  illegal  contracts,  nor  aid 
in  the  division  of  profits  of  an  illegal  transaction  be- 
tween associates.  Neustadt  v.  Hall,  58  111.  172:  It  is 
there  said,  'In  the  language  of  Lord  Ellenborough,  we 
will  not  assist  an  illegal  transaction  in  any  respect;  we 
leave  the  matter  as  we  find  it.  *  *  *'  It  may  be 
insisted  that  it  is  unjust  as  between  the  parties  for  Ten- 
ney to  raise  the  question,  and  very  dishonest  *  *  *  for 
him  to  take  advantage  of  it,  but  the  contract  being  illegal, 
no  rights  can  be  enforced  under  it.  *  *  *  The 
maxim,  'ex  turpi  contractu  non  oritur  actio'  (out  of  an 
illegal  contract  no  action  arises),  applies  in  all  such  cases, 
and  neither  party  if  in  pari  delicto  (in  equal  guilt)  can 
have  assistance  in  courts  of  justice  in  enforcing  the  con- 
tract. And  the  objection  may  be  made  by  a  party  in  pari 
delicto,  for  the  defense  is  not  allowed  because  the  party 
raising  the  objection  is  entitled  to  the  relief,  but  upon 
principles  of  public  policy  and  to  conserve  the  public 
welfare.     *     *     *" 

Question  73:     Why  will  the  Court  allow  one  party  to  an 


LEGALITY  123 

illegal  agreement  to  set  up  the  illegality  to  prevent  the  enforce- 
ment of  the  contract? 

(b)    Judicial  Rescission  of  Illegal  Agreement. 

§  55.  General  rule  no  relief  of  any  §  57.  Exception   to   rule  where   the 

Sort  granted.  defendant's  contract   is   en- 

§  56.  Exception  to  rule,  where  par-  •       tirely  executory. 

ties  not  in  pari  delicto.  §  58.  Exception  to  rule  by  statute. 

Sec.  55.    General  Rule  No  Relief  of  Any  Sort.    ("Alle- 
gans  Suam  Turpitudinem  non  est  Audiendus.") 

Case  No.  74.     Chapman  v.  Haley,  80  S.  W.  (Ky.)  190. 

Facts:  Suit  by  Haley  to  recover  of  Chapman  $300  al- 
leged to  have  been  paid  to  Chapman  for  investment  pur- 
poses. The  evidence  disclosed  that  Chapman  agreed 
with  Haley  that  if  Haley  would  pay  him  $300,  he  would 
sell  him  $3,000  in  "good"  money,  that  the  parties  met 
in  a  small  room  in  Cincinnati  to  carry  out  the  agreement ; 
that  Haley  paid  Chapman  the  $300  and  Chapman  went 
out  to  get  the  $3,000  promising  to  return  in  a  few  min- 
utes, but  that  he  did  not  come  back.  Haley  testified  that 
he  thought  the  $3,000  was  all  right,  except  that  he  un- 
derstood there  was  something  wrong  about  the  numbers. 
But  the  court  says  "that  appellee  [Haley]  fully  under- 
stood that  under  the  contract  he  was  to  purchase  counter- 
feit money,  cannot  be  doubted.' ' 

Point  Involved:  Whether  the  court  will  lend  its  aid 
to  compel  repayment  of  money  (or  surrender  of  any 
property)  parted  with  under  an  illegal  agreement  not 
performed  by  the  other  side. 

Barker,  J. :  '  *  •  *  *  It  is  unnecessary  to  say  that 
this  conspiracy  between  these  two  men  to  purchase  coun- 
terfeit money  constituted  an  illegal  contract  and  was 
void.  *  *  *  The  question  as  to  whether  or  not  ap- 
pellee who  was  equally  guilty  with  appellant,  can  recover 
the  money  paid  by  him  in  pursuance  of  this  criminal  con- 
spiracy, is  the  first  question  for  adjudication? 

"In  the  case  of  Kimbrough  v.  Lane,  11  Bush,  556,  the 


124  CONTRACTS 

contract  was  for  the  payment  of  $3,000  to  secure  the  dis- 
mission of  an  indictment  against  Lane  for  a  felony.  In 
affirming  a  judgment  dismissing  the  petition  in  the  action 
wherein  it  was  sought  to  recover  the  $3,000,  this  court 
said:  'It  is  sufficient  to  say  on  this  point  that  the  rule  of 
law  inhibiting  such  contracts  was  not  made  for  the  bene- 
fit of  the  obligors.  The  courts  will  not  enforce  such  con- 
tracts because  they  are  levelled  at  the  safety  and  repose 
of  society.  *  *  *  If  money  is  paid  upon  such  a  con- 
tract, the  courts  will  not  aid  in  recovering  it  back.  They 
will  leave  both  parties  in  the  exact  position  in  which  they 
have  placed  themselves.'  " 

Question  74:  (1.)  State  the  facts  in  the  above  ease  and  the 
rule  applied. 

(2.)  A  desired  to  open  up  a  place  of  business  as  a  pool  room 
and  for  bookmaking  purposes.  The  object  of  his  business  was 
forbidden  by  ordinance,  but  the  public  authorities  in  violation 
of  such  ordinance  were  accustomed  to  grant  licenses.  A  paid 
$500  for  such  a  license  for  one  year,  which  was  granted  him.  He 
then  began  the  illegal  business.  The  authorities  thereupon  closed 
it  up.    He  sues  to  recover  the  money.    Can  he  recover  ?    Why  ? 

(3.)  A  being  desirous  of  procuring  the  office  of  clerk  of  a 
police  court  sent  $20  to  B  asking  B  in  consideration  thereof  to 
use  his  influence  to  get  A  nominated.  B  used  the  money  to  de- 
feat A's  nomination.  A  sues  to  recover  the  money.  What  re- 
sult?   (Liness  v.  Hesing,  44  HI.  113.) 

Sec.  56.    Exception  to  Rule  Where  Parties  Not  in  Pari 

Delicto. 

Case  No.  75.     Duval  v.  Wellman,  124  N.  Y.  156. 

Facts:  Plaintiff  sues  as  assignee  of  Mrs.  E.  Guion,  a 
widow,  "who  in  her  search  for  a  husband  sought  the  ad- 
vice and  aid  of  the  defendant,  who  was  the  owner  and 
publisher  of  a  matrimonial  journal  called  'The  New  York 
Cupid*  and  the  proprietor  of  a  matrimonial  bureau  in 
New  York  City."  Mrs.  Guion  testified  that  she  paid  de- 
fendant $5.00  as  a  registration  fee  and  later  $50  under  an 
agreement  that  it  was  to  be  returned  to  her  if  no  husband 


LEGALITY  125 

were  found,  but  that  $50  additional  was  to  be  paid  if  she 
married  any  gentleman  introduced  by  defendant.  Later, 
Mrs.  Guion,  finding  no  one  satisfactory  among  those  in- 
troduced to  her  demanded  back  her  $50,  which  was  re- 
fused.   Suit  to  recover  such  $50. 

Point  Involved:  Whether  a  marriage  brokerage  agree- 
ment is  illegal,  and  whether  fees  paid  thereunder  can  be 
recovered  on  any  theory. 

Brown,  J. :  "*  *  *  The  five  learned  judges  who  have 
delivered  opinions  in  the  case  have  agreed  that  the  con- 
tract between  the  parties  was  void,  and  this  conclusion 
appears  to  be  ably  supported  by  authority.     *     *     * 

a*  *  *  rjT^  (Jefendant  has,  however,  succeeded  in 
the  lower  court  on  the  application  of  the  rule  that  a  court 
will  not  lend  its  aid  to  either  of  the  parties  to  an  illegal 
or  fraudulent  contract,  either  by  enforcing  its  execution 
if  it  be  executory,  or  by  rescinding  it,  if  it  be  executed. 

"Public  policy  has  dictated  the  adoption  of  this  rule, 
but  it  has  its  limitations,  and  when  the  parties  are  not 
equally  guilty,  or  when  the  public  interest  is  advanced 
by  allowing  the  more  excusable  of  the  two  to  sue  for  re- 
lief, the  courts  will  aid  the  injured  party  by  setting  aside 
the  contract  and  restoring  him,  so  far  as  possible  to  his 
original  position.  (1  Pomeroy's  Equity,  sec.  403;  1 
Story's  Equity,  sec.  300.) 

<<*  *  *  jn  many  sue]!  cases  relief  from  the  con- 
tract will  be  afforded  to  the  least  guilty  party  when  he 
appears  to  have  acted  under  circumstances  of  imposition, 
hardship,  or  undue  influence,  and  especially  where  there 
is  a  necessity  of  supporting  public  interests  or  a  well 
settled  policy  of  the  law,  whether  that  policy  be  declared 
in  the  statutes  of  the  state  or  be  the  outgrowth  of  the 
decision  of  the  courts. 

i  i  *  •  *  Accordingly  many  cases  may  be  cited  where 
relief  has  been  granted  from  contracts  which  partook 
of  the  character  of  marriage  brokerage  agreements.  The 
cases  are  collected  in  Pomeroy's  Equity  Jurisprudence, 
in  a  note  to  section  931;  in  Fonblanques  Eq.  (B.  I.,  ch.  4, 


126  CONTRACTS 

Par.  10,  11),  and  Bacon's  Abridgment,  Title  Marg.  and 
Divrs.  (541  et  seq.),  and  need  not  be  cited  here. 

"In  two  of  the  cases  referred  to,  money  paid  under 
the  contract  was  recovered  back.  (Smith  v.  Bruning,  2 
Vera.  392;  Goldsmith  v.  Bruning,  1  Eq.  Cases  Abr.  89.) 

"The  question  in  this  and  kindred  cases,  therefore, 
must  always  be  whether  the  parties  are  equal  in  guilt. 
Obviously  cases  might  arise  where  this  would  clearly  ap- 
pear and  where  the  court  would  be  justified  in  so  holding 
as  a  matter  of  law,  as  where  there  "was  an  agreement  be- 
tween two,  having  for  its  purpose  the  marriage  of  one  to 
a  third  party,  the  parties  would  be  so  clearly  in  pari 
delicto  that  the  courts  would  not  aid  the  one  who  had  paid 
money  to  the  other  in  the  promotion  of  the  common 
purpose,  to  recover  it  back.  Such  a  case  would  partake 
of  the  character  of  a  conspiracy  to  defraud.  So  if  two 
parties  entered  into  a  partnership  to  carry  on  such  a 
business  as  defendant  conducted,  the  courts  would  not 
lend  their  aid  to  either  to  enforce  the  agreement  be- 
tween them. 

"But  where  a  party  carries  on  a  business  of  promoting 
marriage  as  the  defendant  appears  to  have  done,  it  is 
plain  to  be  seen  that  the  natural  tendency  of  such  busi- 
ness is  immoral  and  it  would  be  so  clearly  the  policy  of 
the  law  to  suppress  it  and  public  interest  would  be  so 
greatly  promoted  by  its  suppression,  that  there  would  be 
no  hesitation  upon  the  part  of  the  courts  to  aid  the  party 
who  had  patronized  such  a  business  by  relieving  him 
or  her  from  all  contracts  made,  and  grant  restitution  of 
any  money  paid  or  property  transferred.  In  that  way 
only  could  the  policy  of  the  law  be  enforced  and  public 
interests  promoted. 

"Contracts  of  this  sort  are  considered  as  fraudulent 
in  their  character  and  parties  who  pay  money  for  the 
purpose  of  procuring  a  husband  or  wife  will  be  regarded 
as  under  a  species  of  imposition  or  undue  influence. 

"The  subject  is  classed  by  all  text  writers  under  the 
head  of  constructive  or  implied  fraud,  and  it  is  upon 
the  application  of  rules  which  belong  to  that  branch  of 


LEGALITY  127 

the  law  that  the  cases  have  been  decided  to  which  I  have 
referred. 

"We  are  of  the  opinion,  therefore,  that  it  was  error 
to  hold  as  a  legal  conclusion  that  the  parties  to  the  con- 
tract in  question  were  equal  in  guilt.     *     *     *" 

Question  75:  State  the  above  case,  and  the  Court's  decision, 
giving  the  reason  therefor. 

(Note:  The  rule  that  if  the  complaining  party  is  not  in  pari 
delicto  [in  equal  guilt]  he  may  have,  where  necessary,  judicial 
rescission,  does  not  contemplate  a  mere  difference  in  degree  of 
guilt,  but  rather  in  the  nature  of  the  guilt.  There  must  be 
fraud  or  imposition  of  some  sort  practiced  on  the  complaining 
party  which  notwithstanding  the  fact  that  he  also  is  not  free 
of  guilt,  will  give  him  standing  in  the  courts.) 

Sec.  57.    Exception  to  Rule  Where  Defendant's  Contract 

Is  Executory. 

Case  No.  76.  Mueller  v.  Wm.  F.  Stoecker  Cigar  Com- 
pany, 131  N.  W.  (Nebr.)  923. 

Facts:  Plaintiff  purchased  a  one-half  interest  in  the 
Wm.  F.  Stoecker  Cigar  Co.,  paying  in  advance  $500.00, 
and  agreeing  to  pay  the  residue  according  to  an  inven- 
tory to  be  made.  The  store  contained  about  20  slot  ma- 
chines, as  plaintiff  knew,  and  about  which  at  the  time 
he  made  no  objection.  Repenting  his  purchase,  he  now 
sues  to  recover  the  $500.00  so  paid  on  the  ground  that 
the  contract  was  illegal. 

Point  Involved:  Whether  a  party  who  has  paid  money 
under  an  illegal  agreement  will  be  allowed  to  withdraw 
from  the  agreement  and  recover  such  money  where  the 
other  party  has  not  performed  his  part  of  the  agreement. 

Reese,  Ch.  J. :  "•  *  *  Without  entering  upon  a 
description  of  the  slot  machines  in  use  in  the  business, 
we  think  it  must  be  and  is  conceded,  that  they  were  all 
gambling  devices,  used  probably  not  so  much  as  yielding 
a  revenue  to  the  stores  in  the  way  of  winnings,  but  for 


128  CONTRACTS 

the  purpose  of  stimulating  trade,  the  purchasers  pre- 
ferring to  take  a  chance  of  heavier  winnings  rather  than 
to  buy  goods  directly  at  the  regular  and  established 
prices.  While,  in  the  long  run,  the  business  may  not 
have  been  so  much  the  gainer  from  the  winnings  proper, 
yet,  by  allowing  others  to  play  the  hazard,  the  sales  were 
very  much  increased.  That  they  were  gambling  devices 
is  clear  enough.  It  is  also  apparent  that  plaintiff  of- 
fered no  objection  to  them,  and  was  in  no  way  conscience- 
smitten,  either  at  the  time  of  the  purchase  or  thereafter, 
until  he  learned  by  consultation  with  others  that  he  might 
avoid  his  contract  and  recover  back  the  money  paid  upon 
the  theory  that  the  purchase  of  the  slot  machines  was 
against  good  morals  and  public  policy,  and  which  his  then 
enlightened  conscience  could  not  withstand.  He  sued 
defendant  for  the  return  of  the  money  paid,  instituting 
his  suit  in  the  county  court  as  'for  money  had  and  re- 
ceived. '     *     *     * 

a*  *  #  At  the  time  of  the  purchase,  the  use  of  slot 
machine  was  common  in  practically  all  the  cigar  stores 
in  the  city  of  Omaha,  as  well  as  elsewhere,  and  there 
seems  to  be  no  thought  among  proprietors  of  estab- 
lishments owning  them  that  their  use  was  in  violation 
of  law,  or  was  subject  to  condemnation.  But  these  con- 
siderations cannot  enter  into  the  case  as  controlling  the 
rights  of  the  parties,  however  much  the  course  pursued 
by  plaintiff  may  be  condemned  by  fair-minded  people  as 
showing  a  want  of  the  proper  conception  of  business  in- 
tegrity. *  *  *  Tne  slot  machines  were  so  operated 
that  the  operator,  by  placing  his  coin  within  and  start- 
ing the  action  of  the  machine,  stood  to  win  or  lose — by 
a  chance.  This  constituted  gambling  and  the  machines 
gambling  devices.  *  *  *  It  would  therefore  follow 
that  defendant's  business,  at  least,  to  the  extent  of  the 
use  of  the  slot  machines,  was  an  illegal  one.  The  ma- 
chines constituted  a  part  of  the  stock  purchased  by  the 
plaintiff.  Their  use  constituted  a  part — an  important 
part — of  the  carrying  on  of  the  business.  It  must  fol- 
low that  the  contract  of  purchase  was  an  illegal  one. 


LEGALITY  129 

"It  seems  to  be  the  general  holding  of  the  courts  that, 
so  long  as  an  illegal  contract  remains  executory,  and  the 
illegal  purpose  has  not  been  put  into  operation,  the  one 
who  has  paid  money  thereon  to  the  other  party  may 
repudiate  the  contract  and  recover  back  the  money. 
Stover  v.  Flower,  120  Iowa,  514,  94  N.  W.  1100,  and  cases 
there  cited;  McCall  v.  Whaley,  52  Tex.  Civ.  App.  646, 
115  S.  W.  659." 

Question  76:  State  the  facts,  the  question  presented  and  the 
decision  of  the  Court  in  the  above  case. 

Sec.  58.    Exception  to  Rule  by  Statute. 

Case  No.  77.     Rice  v.  Winslow,  182  Mass.  273. 

Facts:  Suit  brought  to  declare  void  a  negotiable 
promissory  note  and  a  mortgage  given  in  security 
thereof.  There  was  a  statute  in  Massachusetts  giving 
a  party  a  right  to  avoid  his  contracts  and  recover  back 
any  money  paid  or  property  parted  with,  in  gambling 
transactions. 

Point  Involved:  The  right  to  rescind  contracts  of  an 
illegal  nature  where  the  statute  so  provides. 

Mortox,  J. :  "*  *  *  The  contracts  (in  question) 
were  clearly  wagering  contracts,  and,  as  such,  illegal. 
*  and  prior  to  the  passage  of  statute  1890,  Ch. 
437,  the  plaintiff  would  not  have  been  entitled  to  recover 
any  sums  paid  by  him  in  the  course  of  their  performance, 
or  to  have  any  security  that  he  had  given  declared  void. 
*  *  *  But  the  object  of  that  statute  was  to  discredit 
and  discourage  such  transactions  by  giving  the  losing 
party  the  right  to  avoid  his  contracts  and  to  recover 
back  any  payment  made  or  the  value  of  anything  de- 
livered.    *     *     *" 

Question  77:  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  the  above  case? 

(2.)   Had  there  been  no  statute  do  you  think  the  payee  of  the 


130  CONTRACTS 

note  could  have  recovered  on  it,  or  could  have  foreclosed  the 
mortgage,  had  the  illegality  been  pleaded? 

(3.)  If  the  defendant  could  not  have  enforced  the  note  or 
mortgage  had  he  sued  thereon,  name  reasons  that  you  think 
of  why  the  maker  should  ask  affirmative  relief. 

(Note:  Statutes  of  this  sort  are  in  force  in  a  number  of  states 
with  respect  to  money  lost  at  gaming,  money  paid  to  lotteries, 
etc.  Without  such  statute,  the  court  could  give  no  relief.  But 
the  statute  makes  exceptions  of  this  sort  on  the  theory  that  the 
evil  can  be  in  that  way  mitigated  rather  than  by  the  applica- 
tion of  the  general  rule,  admittedly  better  as  a  general  rule, 
than  the  rule  of  the  exceptions.) 

E.    Contracts  Whose  Objects  Are  Partly  Legal,  Partly 

Illegal. 

Sec.  59.    The  Rule  Stated. 

Case  No.  78.    Bixby  v.  Moore,  51  N.  H.  402. 

Facts:  Moore  kept  a  saloon  in  which  he  illegally  sold 
liquors.  He  also  in  connection  therewith  operated  a 
billiard  hall  legally.  He  employed  Bixby  to  render 
services  in  and  about  the  billiard  hall  and  in  selling  the 
liquor.    Bixby  sued  for  his  compensation. 

Point  Involved:  Whether  a  contract  the  consideration 
for  which  is  partly  legal  and  partly  illegal,  and  indivisi- 
ble in  its  nature,  can  be  enforced  as  to  the  legal  part. 

Smith,  J.,  delivered  the  opinion  of  the  Court: 
1 1  #  #  #  rpne  piaintiff  would  have  been  entitled  to  the 
reasonable  worth  of  his  entire  services  if  no  part  of  them 
had  been  rendered  in  an  illegal  business.  It  must  be  con- 
ceded he  cannot  recover  for  his  services,  in  the  sale  of 
liquor;  but  he  claims  a  portion  of  his  services  was  ren- 
dered in  a  legal  employment  and  that  he  can  recover  the 
value  of  that  portion.     *     *     * 

"If  the  consideration  for  the  defendant's  promise  to 
pay  the  plaintiff  a  reasonable  compensation  was  the 
plaintiff's  promise  to  perform  both  classes  of  services, 
the  illegal  as  well  as  the  legal,  it  is  clear  the  defendant 's 


LEGALITY  131 

promise  cannot  be  enforced.  A  contract  is  invalid  if 
any  part  of  the  consideration  on  either  side  is  unlaw- 
ful.    *     *     * 

''The  questions  arising  in  this  case — what  services 
did  the  plaintiff  agree  to  perform?  Was  it  an  entire 
contract?  Were  there  separate  contracts  upon  separate 
considerations  as  to  the  legal  and  illegal  services? — are 
all  questions  of  fact.  *  *  *  In  the  present  case, 
however,   there   is   no   room   for   but   one   conclusion: 

*  *  *  the  plaintiff  made  an  entire  promise  to  per- 
form   both    classes    of    service;    this    entire    promise 

*  *  *  formed  an  entire  consideration  *  *  *  and 
a  part  of  this  indivisible  consideration  was  illegal.  (Cer- 
tain cases)  cited  by  the  plaintiff  are  not  in  point.  In 
those  cases  the  different  articles  sold  were  valued  sep- 
arately in  the  sale.  *  *  *  It  is  not  contended  that 
it  is  customary  to  pay  saloon  tenders  separate  prices 
for  sweeping,  for  building  fires,  for  acting  as  billiard 
markers,  and  for  selling  liquor.     *     *     *" 

Judgment  for  defendants. 

Question  78:  (1.)  State  the  facts,  the  question  presented  and 
the  decision  of  the  Court  in  the  above  case. 

(2.)  Suppose  in  this  case  Moore  had  had  two  separate  places 
and  had  employed  Bixby  for  $10  a  week  to  work  in  the  fore- 
noons at  the  place  legally  conducted  and  $10  a  week  to  work  in 
the  afternoons  in  the  place  illegally  conducted.  Do  you  think 
he  could  have  recovered  for  his  legal  employment? 


CHAPTER    SIX 
FORM  AND  EVIDENCE  OF  CONTRACT 

A.  Contracts  under  seal.  a  written  contract — the  parol 

B.  Contracts  required  by  law  to  be  evidence  rule. 

in  writing.  D.  Oral  and  implied  contract. 

C.  The  writing  as  the  evidence  of 

A.    Contracts  Under  Seal. 

(Note:  Contracts  are  classified  as  formal  contracts  and  in- 
formal contracts.  Formal  contracts  were  contracts  of  record 
(judgments  and  recognizances)  and  contracts  under  seal.  The 
latter  were  the  only  true  formal  contracts.  All  contracts  not 
under  seal  were  known  as  informal  or  simple  contracts.) 

§  60.  Definition    of    contract    under       §  61.  Legal    characteristics    of    con- 
seal,  tract  under  seal. 

Sec.  60.    Definition  of  Contract  Under  Seal. 

Case  No.  79.    Warren  v.  Lynch,  5  Johns.  (N.  Y.)  239. 

Facts:  An  instrument  was  signed  "Thomas  Lynch 
(L.  S.)"  and  the  issue  was  whether  under  the  common 
law  then  in  force  on  that  point  in  New  York,  it  was 
under  seal. 

Point  Involved:  "What  under  the  common  law  was  an 
instrument  under  seal. 

Kent,  C.  J. :  "A  seal,  according  to  Lord  Coke  (3  Inst. 
169),  is  wax  with  an  impression.  *  *  *  A  scrawl 
with  a  pen  is  not  a  seal  and  deserves  no  notice.  The  law 
has  not,  indeed,  declared  of  what  precise  materials  the 

132 


FORM  OF  CONTRACT  133 

wax  shall  consist;  and  whether  it  is  a  wafer  or  any  other 
paste  or  matter  sufficiently  tenacious  to  adhere  and  re- 
ceive an  impression  is  perhaps  not  material.  But  the 
scrawl  has  no  one  property  of  a  seal.  *  *  *  The 
policy  of  the  law  consists  in  giving  ceremony  and  solem- 
nity to  the  execution  of  important  instruments  by  means 
of  which  the  intention  of  the  parties  is  more  certainly 
and  effectually  fixed  and  frauds  less  likely  to  be  prac- 
ticed upon  the  unwary.     *     *     *" 

Question  79 :  What  was  the  character  of  the  act  that  made  an 
instrument  under  seal? 

Case  No.  80.    Ankeny  v.  McMahon  et  al.,  4  111.  12. 
The  facts  appear  in  the  opinion. 

Point  Involved:  That  legislation  has  abolished  the  seal 
as  the  necessary  form  of  the  sealed  instrument. 

Treat,  J.,  delivered  the  opinion  of  the  Court: 
ti*  *  #  The  paper  in  question  is  described  in  the  body 
of  it,  as  sealed  with  the  seals  of  the  parties,  and  the  let- 
ters 'L.  S.'  are  in  print  opposite  the  names  of  Ankeny 
and  Logan,  respectively.  The  first  section  of  'An  act 
concerning  practice'  provides  'that  any  instrument  of 
writing,  to  which  the  maker  shall  affix  a  scrawl  by  way  of 
seal,  shall  be  of  the  same  effect,  to  all  intents,  as  if  the 
same  were  sealed.'  This  statute  gives  equal  solemnity 
to  instruments  to  which  signers  affix  their  scrawls,  as 
to  those  which  they  affix  their  seals  by  impression  on  wax 
or  other  tenacious  substance.  But  it  is  urged  that  to  give 
them  the  dignity  of  sealed  instruments,  the  scrawls  should 
be  actually  affixed  by  the  signers.  We  do  not  perceive 
any  good  reason  for  this  distinction.  The  printing  of 
the  scrawl,  or  the  characters  representing  a  seal,  is  as 
legible  and  durable  as  if  made  with  a  pen  by  the  party, 
the  only  other  usual  mode  of  affixing  a  scrawl  by  way  of 
seal ;  and  it  equally  indicates  the  intention  of  the  signer 
as  to  the  character  of  the  instrument.     *     *     * 


134  CONTRACTS 

"If  he  places  his  signature  opposite  a  scrawl  already 
made,  he  thereby  adopts  it  and  makes  it  his  own.  These 
views  are  strengthened  by  reference  to  the  decisions  in 
1  McLean,  462;  2  Blackf.  322 ;  and  3  Blackf .  162.    *    *    *" 

Question  80:  What  was  the  question  presented  and  what 
did  the  Court  decide  in  the  above  case?  How  did  this  statute 
change  the  common  law  as  laid  down  in  the  previous  case  ? 

Sec.  61.    Legal  Characteristics  of  Contracts  Under  Seal. 

Case  No.  81.  Rann  v.  Hughes,  7  Term  Eeports,  350 
note. 

Facts:  Suit  against  an  administrator  on  a  written 
promise  by  him  to  pay  certain  debts  of  deceased  for 
which  promise  there  was  no  consideration.  It  was  con- 
tended that  as  the  promise  was  in  writing,  although  not 
under  seal,  a  consideration  was  not  necessary  to  support 
the  promise. 

Point  Involved:  Whether  a  contract  in  writing  and 
not  under  seal  must  have  consideration.  Character  of 
promise  under  seal. 

Lord  Chief  Baron  Skinner:  "All  contracts  are  by 
the  law  of  England  distinguished  into  agreements  by 
specialty  and  agreements  by  parol ;  nor  is  there  any  such 
third  class  as  counsel  have  endeavored  to  maintain,  as 
contracts  in  writing.  If  they  be  merely  written  and 
not  specialties,  they  are  parol  and  a  consideration  must 
be  proved." 

Question  81:  What  was  the  point  in  issue?  What  did  the 
Court  decide?  What  great  division  of  contracts  did  the  Court 
make?    What  is  the  vital  point  of  distinction? 

(Note:  Contracts  under  seal  are  also  called  contracts  by 
"specialty,"  and  simple  contracts  are  also  called  contracts  "by 
parol."  The  word  "parol"  is  used  in  law  in  a  number  of 
meanings.  In  this  connection  it  means  any  contract  not  under 
seal,  whether  in  writing  or  not.    It  is  often  also  used  in  other 


FORM  OF  CONTRACT  135 

connections  as  synonymous  with  "oral,"  and  sometimes  as  syn- 
onymous with  extrinsic,  as  in  the  law  of  evidence.  See  Sees. 
75  to  79,  post.) 

Case  No.  82.    Walker  v.  Walker,  13  Ired.  (N.  C.)  335. 

Peaesons,  J.:  "We  are  not  aware  of  any  rule  of  law 
by  which  a  consideration  is  inferred  from  the  fact  of  the 
execution  of  a  sealed  instrument.  No  consideration  is 
necessary  in  order  to  give  validity  to  a  deed  (an  instru- 
ment under  seal).  It  derives  its  efficacy  from  the  solem- 
nity of  its  execution — the  act  of  sealing  and  delivery, 
not  upon  the  idea  that  a  seal  imports  a  consideration,  but 
because  it  is  his  solemn  act  and  deed  and  is  therefore 
obligatory.  *  *  *  The  general  rule  is  that  a  deed 
is  valid  without  a  consideration.     *     *     *" 

Question  82:  What  is  the  rule  of  law  announced  by  the  above 
decision  ? 

(Note :  It  is  often  said  by  Courts  and  text  writers  that  a  con- 
tract under  seal  is  binding  because  it  imports  a  consideration, 
or  because  the  party  is  estopped  to  deny  a  consideration.  But 
the  true  rule  is  that  by  common  law  a  contract  under  seal  was 
enforceable  because  it  was  under  seal  and  not  because  a  consid- 
eration cannot  be  denied.  This  is  shown  by  the  fact  that  histor- 
ically promises  under  seal  were  enforced  before  the  theory  of 
consideration  was  evolved.  It  would  be  just  as  logical  to  say 
that  promises  upon  consideration  were  binding  because  a  consid- 
eration imports  a  seal.  The  truth  is  that  by  common  law,  there 
were  two  sorts  of  contractual  promises,  the  one  under  seal,  en- 
forceable because  under  seal,  and  promises  upon  consideration, 
enforceable  because  upon  consideration.  The  latter  contract 
has  become  the  characteristic  contract  of  modern  times. 

There  were  certain  contracts  by  ancient  law  that  needed  to 
be  under  seal,  as  deeds  of  conveyance,  bonds  and  powers  of 
attorney.  But  any  instrument  could  be  put  under  seal  and 
such  seal  gave  it  its  legal  character.) 

Case  No.  83.  William  Herbert  Page,  Contracts,  Sec. 
13. 


136  CONTRACTS 

"The  modern  theory  that  contract  is  an  agreement 
enforceable  at  law  has  disarranged  common  classifica- 
tions based  on  the  form  of  action.  However,  since  the 
common  law  classification  went  back  to  the  beginning 
of  the  common  law  itself,  it  survives  to  this  day,  though 
the  original  reason  for  its  existence  has  long  since  van- 
ished. The  simple  contract,  though  the  last  to  be  devel- 
oped, is  now  looked  upon  at  modern  law  as  the  contract 
par  excellence.  It  is  the  representative  type  of  contract 
at  modern  law,  and  possesses  all  the  elements  requisite 
therefor,  since  it  is  an  agreement  which  by  reason  of  its 
consideration,  the  law  will  enforce.  Whether  the  simple 
contract  is  expressed  or  implied  makes  no  difference  ex- 
cept as  to  the  evidence  by  which  it  is  to  be  proved,  as 
long  as  it  is  a  genuine  agreement.  Contracts  under  seal 
are  genuine  contracts  since  they  are  agreements  which, 
by  reason  of  their  form,  are  enforceable  at  law.  They 
do  not  possess  the  same  elements  as  simple  contracts; 
for  they  require  form  which  simple  contracts  do  not; 
and  do  not  require  consideration  which  simple  contracts 
do,  but  they  are  included  under  the  definition  of  con- 
tract. By  reason  of  the  abolition  of  private  seals  in 
many  jurisdictions,  and  the  requirement  of  a  considera- 
tion even  in  contracts  under  seal  this  class  of  contracts 
has  lost  its  original  importance. ' ' 

Question  83:  (1.)  What  is  the  important  type  of  contract 
of  the  present  day  ? 

(2.)  What  form  of  contract  has  lost,  in  many  jurisdictions, 
its  former  importance?    Why? 

(Note :  Statutes  in  the  various  states  have  in  different  degrees 
changed  the  ancient  law  of  sealed  instruments.  In  some  the  seal 
is  abolished,  in  some  it  is  still  in  use,  but  with  less  effect  than 
at  common  law.  In  some  it  is  still  necessary  for  certain  pur- 
poses.) 

B.    Contracts  Required  by  Law  to  be  in  Writing.    (The 
Statute  of  Frauds.) 

(a)  In  general  of  contracts  that  are       (b)  The  statute  of  frauds, 
required    by    law    to    be    in 
writing. 


FOBM  OF  CONTRACT  137 

(a)    In  General  of  Contracts  That  Are  Required  by  Law 
to  Be  in  Writing. 

Sec.  62.    General  Statement  as  to  Contracts  That  Must 
Be  in  Writing. 

(Editor's  note:  In  this  chapter,  we  consider  those  contracts 
which  are  required  by  the  law  to  be  in  writing,  or  which  are 
not  provable  in  the  courts  unless  their  existence  can  be  shown 
by  written  evidence.  Contracts  may  be  placed  in  writing  be- 
cause the  law  requires  or  because  the  parties  desire  it.  Those 
which  must  be  in  writing  because  the  law  requires  it  are  divis- 
ible into  two  classes:  (1)  Those  contracts,  in  whose  formation 
writing  is  essential,  as  deeds  to  real  estate,  negotiable  instru- 
ments, acceptances  of  bills  of  exchange,  etc.  (2)  Those  which 
may  exist  as  contracts  though  not  in  written  form,  but  whose 
enforceability  in  a  court  depends  upon  their  proof  from  some 
written  memorandum  or  note,  signed  by  the  party  who  is  sought 
to  be  charged.  Such  contracts  are  chiefly  included  within  the 
provisions  of  "The  Statutes  of  Frauds  and  Perjuries,"  to  whose 
consideration  we  will  devote  the  remainder  of  this  chapter.  From 
the  subsequent  sections  we  will  understand  the  purview  and 
effect  of  this  legislation.) 

Question:  In  what  two  classes  may  be  placed  contracts  which 
are  required  by  law  to  be  in  writing? 

(b)     The  Statute  of  Frauds. 

(1)  Generally   of   the   purpose   and       (2)   The  cases  within  the  statute  of 
history    of    the    statute    of  frauds. 

frauds.  (3)  What  amounts  to  a  compliance 

with  the  statute. 

(1)     Generally  of  the  Purpose  and  History  of  the  Stat- 
ute of  Frauds. 

§  63.  Text  of  the  statute.  §  65.  The  object  of  the  statute. 

§  64.  History  of  the  statute. 

Sec.  63.    Text  of  the  Statute. 

Case  No.  84.  Statute  of  Frauds  and  Perjuries,  29  Car. 
II,  Ch.  3,  Sec.  4. 


138  CONTRACTS 

"For  the  prevention  of  many  fraudulent  practices 
which  are  commonly  endeavored  to  be  upheld  by  Perjury 
and  Subornation  of  Perjury,  Be  it  enacted    *     *     * 

"Sec.  4.  That  no  action  shall  be  brought  (1)  whereby 
to  charge  any  executor  or  administrator  upon  any  spe- 
cial promise  to  answer  damages  out  of  his  own  estate; 
(2)  or  whereby  to  charge  the  defendant  upon  any  spe- 
cial promise  to  answer  for  the  debt,  default  or  miscar- 
riage of  another  person;  (3)  or  to  charge  any  person 
upou  any  agreement  made  upon  consideration  of  mar- 
riage; (4)  or  upon  any  contract  for  the  sale  of  lands, 
tenements  or  hereditaments,  or  any  interest  in  or  con- 
cerning them;  (5)  or  upon  any  agreement  that  is  not  to 
be  performed  in  the  space  of  one  year  from  the  making 
thereof;  unless  the  agreement  upon  which  such  action 
shall  be  brought,  or  some  memorandum  or  note  thereof, 
shall  be  in  writing  and  signed  by  the  party  to  be  charged 
therewith,  or  some  other  person  thereunto  by  him  law- 
fully authorized.' ' 

"Sec.  17.  That  no  contract  for  the  sale  of  any  goods, 
wares  and  merchandise,  for  the  price  of  ten  pounds 
sterling  or  upwards,  shall  be  allowed  to  be  good,  except 
the  buyer  shall  accept  part  of  the  goods  so  sold,  and 
actually  receive  the  same  or  give  something  in  earnest 
to  bind  the  bargain,  or  in  part  payment,  or  that  some 
note  or  memorandum  in  writing  of  the  said  bargain  be 
made  and  signed  by  the  parties  to  be  charged  by  such 
contract,  or  their  agents  thereunto  lawfully  authorized. ' ' 

Question  84:  State  in  your  own  language  the  classes  of  con- 
tracts covered  by  Sections  4  and  17  of  the  English  statute  of 
frauds. 

(Note:  The  above  statute  is  substantially  in  force  in  the 
American  States,  the  verbiage  itself  being  for  the  most  part 
retained.  By  the  Uniform  Sales  Act  [Division  III,  post]  the 
17th  section  is  virtually  re-enacted,  with  a  change  of  price  to 
$500,  which  is  in  force  in  some  states.  The  commonest  price 
substituted  in  the  American  Acts  is  $50.00.) 


STATUTE  OF  FRAUDS  139 

Sec.  64.    History  of  the  Statute  of  Frauds. 

(Note :  In  an  Article  in  26  Harvard  Law  Review,  page  329, 
Professor  George  P.  Costigan  disposes  of  a  common  error  as 
to  the  date  of  the  statute  of  frauds,  caused  by  the  adoption  of 
the  Gregorian  calendar.  He  concludes :  ' '  Thus,  with  pomp  and 
ceremony,  came  into  legal  existence  that  Statute  of  Frauds  which 
has  been  both  so  much  praised  and  so  much  deplored;  and  its 
final  passage  and  the  royal  assent  to  it,  must  both  be  dated  April 
16,  1677."  See  also  that  Article  for  the  authorship  of  that 
statute.) 

Sec.  65.    The  Object  of  the  Statute. 

Case  No.  85.    Bird  v.  Munroe,  66  Maine,  337  (1877). 

Facts:  Suit  on  a  contract  of  sale  of  ice  alleged  to  have 
been  made  on  March  2, 1874,  and  broken  about  March  10, 
1874.  The  written  evidence  produced  to  prove  the  con- 
tract was  made  and  signed  by  defendants  March  24, 1874. 

Point  Involved:  Whether  the  writing  required  by  the 
statute  of  frauds  is  an  essential  element  in  the  contract, 
or  merely  the  evidence  by  which  such  contract  may  be 
proved. 

Peters,  J. :  "*  *  *  Then  the  defendant  next  con- 
tends that,  even  if  the  writing  signed  by  the  parties  was 
intended  by  them  to  operate  retrospectively  as  of  the  first 
named  date,  as  a  matter  of  law,  it  cannot  be  permitted 
to  have  that  effect  and  meet  the  requirements  of  the 
statute  of  frauds.  *  *  *  The  point  raised  is,  whether 
in  view  of  the  statute  of  frauds,  the  writing  shall  be  con- 
sidered as  constituting  the  contract  itself,  or  at  any 
rate  any  substantial  portion  of  it,  or  whether  it  may  be 
regarded  as  merely  the  necessary  legal  evidence  by 
means  of  which  the  prior  unwritten  contract  may  be 
proved.  In  other  words,  is  the  writing  the  contract,  or 
only  evidence  of  it?    We  incline  to  the  latter  view. 

"Another  idea  gives  weight  to  the  argument  for  the 
position  advocated  by  the  plaintiffs,  and  that  is  that  such 


140  CONTRACTS 

a  construction  of  the  statute  upholds  contracts  accord- 
ing to  the  intention  of  the  parties  thereto,  while  it,  at  the 
same  time  fully  subserves  all  the  purposes  for  which  the 
statute  was  created.  It  must  be  borne  in  mind  that  ver- 
bal bargains  for  the  sale  of  personal  property  are  good 
at  common  law.  Nor  are  they  made  illegal  by  the  stat- 
ute. Parties  can  execute  them  if  they  mutually  please  to 
do  so.  The  object  of  the  statute  is  to  prevent  perjury 
and  fraud.  Of  course  perjury  and  fraud  cannot  be 
wholly  prevented;  but,  as  said  by  Bigelow,  J.  (Marsh  v. 
Hyde,  3  Gray,  331)  "a  memorandum  in  writing  will  be 
as  effectual  against  perjury,  although  subsequent  to 
the  making  of  a  verbal  contract,  as  if  it  had  been  exe- 
cuted at  the  moment  when  the  parties  consummated  their 
agreement  by  word  of  mouth. "  We  think  it  would  be 
more  so.  A  person  would  be  likely  to  commit  himself 
in  writing  with  more  care  and  caution  after  time  to  take 
a  second  thought.  The  locus  penetentiae  remains  to  him. 
"It  is  clear  from  the  foregoing  cases,  as  well  as  from 
many  more  that  might  be  cited,  that  the  statute  does  not 
forbid  parol  contracts,  but  only  precludes  the  bringing 
of  actions  to  enforce  them,  as  said  in  Thornton  v.  Kemp- 
er (5  Taunt.  786,  788),  'the  statute  of  frauds  throws  a 
difficulty  in  the  way  of  evidence. '  In  a  case  already  cited, 
Jervis,  C.  J.,  said:  'the  effect  of  the  section  is  not  to 
avoid  the  contract,  but  to  bar  the  remedy  upon  it,  un- 
less there  be  writing.  »  See  analogous  case  of  McClellan 
v.  McClellan,  65  Maine,  500.'  9 

Question  85:  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  the  above  case? 

(2.)  Show  how  this  case  brings  out  that  the  object  of  the 
statute  of  frauds  was  not  to  require  the  formation  of  certain 
contracts  to  be  in  writing,  but  rather  to  require  evidence  of  a 
certain  sort.    How  is  this  fact  of  material  importance  ? 

(Note:  It  is  held  in  many  cases  that  the  statute  cannot  be 
made  a  bar  unless  it  is  specially  pleaded.  The  statute  is  pro- 
vided for  the  "prevention  of  fraud  and  perjury."    While  it 


STATUTE  OF  FRAUDS  141 

may  be  used  as  an  unjust  defense,  its  purpose  is  to  prevent  per- 
jury on  the  part  of  the  plaintiff  by  requiring  him  to  bring  in 
written  evidence  of  the  contract  he  sues  upon,  and  on  the  part 
of  the  defendant  by  producing  against  him  the  writing  which 
he  has  made  and  signed.) 

Case  No.  86.  Rann  v.  Hughes,  7  Term  Beports,  350 
note. 

The  Lord  Chief  Baron:  "*  *  *  But  it  is  said 
that  the  Statute  of  Frauds  takes  away  the  necessity  of 
any  consideration  in  this  case;  the  Statute  of  Frauds 
was  made  for  the  relief  of  personal  representatives  and 
others,  and  did  not  intend  to  charge  them  further  than 
by  the  common  law  they  were  chargeable.  His  Lordship 
here  read  those  sections  of  the  statute  which  relate  to 
the  present  subject.  He  observed  that  the  words  were 
merely  negative,  and  that  executors  and  administrators 
should  not  be  liable  out  of  their  own  estates,  unless  the 
agreement  upon  which  the  action  was  brought,  or  some 
memorandum  thereof,  was  in  writing  and  signed  by  the 
party.  But  this  does  not  prove  that  the  agreement  was 
still  not  liable  to  be  tried  and  judged  of  as  all  other  agree- 
ments merely  in  writing  are  by  the  common  law,  and 
does  not  prove  the  converse  of  the  proposition,  that  when 
in  writing  the  party  must  be  at  all  events  liable.    *    *    * ' ' 

Question  86:  Does  the  statute  of  frauds  render  enforceable 
a  promise  that  was  not  enforceable  before  the  statute  ?  In  other 
words,  does  it  change  the  essential  elements  in  contract? 

(2)     The  Cases  Within  the  Statute  of  Frauds. 


§  66.  Promises  of  executors  and  ad-  §  69.  Contracts  for  sale  of  lands  or 
ministrators.  interest  therein. 

§  67.  Promises  to  answer  for  debts  §  70.  Contracts  not  to  be  performed 
and  defaults  of  others.  within  a  year. 

§  68.  Promises    in    consideration    of  §  71.  Sale  of  personal  property, 
marriage. 


142  CONTRACTS 

Sec.  66.  Promises  of  Executors  and  Administrators  to 
Personally  Answer  for  the  Debts  of  the  Estate  of  the 
Decedent  Must  Be  Proved  by  Written  Evidence  Signed 
by  the  Party  Sought  to  be  Charged. 

Case  No.  87.  Bellows  v.  Sowles,  57  Vermont,  164 
(1884). 

Facts:  Bellow  brought  suit  against  Sowies,  setting 
up  that  he,  the  plaintiff,  was  a  relative  of  Hiram  Sowles, 
deceased  and  being  unprovided  for  in  the  will,  threat- 
ened to  contest  the  same  upon  the  ground  that  it  had 
been  procured  from  the  deceased  by  undue  influence; 
that  the  defendant  the  executor  under  the  will,  being  the 
husband  of  the  principal  beneficiary,  had  promised  plain- 
tiff $5,000  to  forbear  the  contest,  and  the  plaintiff  had 
assented  thereto  and  had  accordingly  forborne;  yet  the 
defendant  disregarding  the  promise,  had  failed  and  re- 
fused to  pay  plaintiff  the  said  amount.  The  defendant 
claims  that  this  promise  if  made,  is  unenforceable  be- 
cause not  in  writing  as  required  by  the  statute  of  frauds. 

Point  Involved:  Whether  the  promise  by  the  executor 
to  pay  an  heir  for  refraining  from  contesting  a  will,  is 
a  promise  to  pay  for  a  debt  of  the  estate  of  the  testator, 
and  therefore  by  the  provisions  of  the  statute  of  frauds 
not  enforceable  unless  evidenced  by  writing  signed  by 
such  executor,  or  whether  it  was  a  direct  primary  under- 
taking by  the  executor,  not  included  within  the  statute  of 
frauds,  and  therefore  binding  though  oral. 

Powers,  J.:  "Counsel  for  the  defendant  have  de- 
murred to  the  declaration  in  this  case  upon  two  grounds : 
first,  that  the  consideration  alleged  is  insufficient;  sec- 
ondly, that  the  promise  not  being  in  writing  comes  within, 
and  is  therefore  not  enforceable  under,  the  statute  of 
frauds. 

"It  has  been  so  often  held  that  forbearance  of  a  legal 
right  affords  a  sufficient  consideration  upon  which  to 
found  a  valid  contract,  and  that  the  consideration  re- 


STATUTE  OF  FRAUDS  143 

quired  by  the  statute  of  frauds  does  not  differ  from  that 
required  by  the  common  law,  it  does  not  appear  to  us  to 
be  necessary  to  review  the  authorities  or  discuss  the 
principle.  As  to  the  second  point  urged  in  behalf  of  the 
defendant,  the  case  presents  greater  difficulties.  *  *  * 
"The  best  understanding  of  the  statute  is  derived  from 
the  language  itself,  viewed  in  the  light  of  the  authorities 
which  seem  to  us  to  interpret  its  meaning  as  best  to  at- 
tain its  object.  That  clause  of  the  statute  under  which 
this  case  falls,  reads :  'No  action  at  law  or  in  equity  shall 
be  brought  *  *  *  upon  a  special  promise  of  an 
executor  or  administrator  to  answer  damages  out  of  his 

own  estate.' 

<<#     *     • 

"The  promise  must  be  to  'answer  damages  out  of  his 
own  estate.'  This  phraseology  clearly  implies  an  obliga- 
tion, duty  or  liability  on  the  part  of  the  testator's  estate 
for  which  the  executor  promises  to  pay  damages  out  of 

his  own  estate. 

n*     *     * 

"Apply  this  rule  to  this  case.  Here,  the  main  pur- 
pose of  the  promisor  was  not  to  answer  damages  (for 
the  testator)  out  of  his  own  estate,  but  was  entirely  to 
subserve  some  purpose  of  the  defendant.  The  matter 
did  not  affect  the  estate.  *  *  *  There  exists,  there- 
fore, in  this  case  no  sufficient,  actual,  primary  liability 
to  which  this  promise  could  be  collateral.  *  *  *  The 
plaintiff  would  be  deprived  of  his  legal  right  to  contest 
the  will,  by  a  party  who  has  reaped  all  the  benefit  of 
the  transaction,  and  is  shielded  from  responsibility  by 
a  technicality.  We  do  not  believe  that  this  was  the  result 
contemplated  by  the  statute.     *     *     *" 

Question  87:  (1.)  What  promise  did  the  executor  make  iD 
the  above  ease  ? 

(2.)  What  two  defenses  were  made  to  the  plaintiff's  claim? 
What  is  the  answer  to  each  of  those  defenses? 

(3.)  State  a  case  that  would  have  come  within  the  statute 
of  frauds. 


144  CONTRACTS 

Sec.  67.  Promises  to  Answer  for  the  Debts,  Defaults  or 
Miscarriages  of  Another  Must  Be  Proved  by  Written 
Evidence  Signed  by  the  Party  Sought  to  Be  Charged. 

Case  No.  88.  Jones  v.  Cooper,  1  Cowper's  Eeports, 
227. 

Facts:  An  oral  promise  by  defendant  upon  goods  be- 
ing delivered  by  plaintiff  to  Smith,  in  these  words  "I 
will  pay  you  if  Smith  will  not. ' '  Defense,  the  statute  of 
frauds. 

Point  Involved:  Whether  the  promise  by.  a  third  per- 
son to  a  creditor  to  pay  if  the  debtor  does  not  must  be 
in  writing  under  the  statute  of  frauds. 

i 

Lord  Mansfield:  "We  are  all  of  opinion  upon  the 
authority  of  the  cases  in  the  books,  that  the  promise  by 
the  defendant  in  this  case,  to  pay  if  Smith  did  not,  is  a 
collateral  undertaking  within  the  statute  of  frauds ;  and 
it  is  so  clear  it  would  be  misspending  time  to  go  through 
the  cases,  or  to  say  much  about  it." 

Question  88:    State  the  above  case. 

Case  No.  89.  Marr  v.  B.  C.  E.  &  N.  Ewy.  Co.,  121 
Iowa  117. 

Facts:  Plaintiff,  Marr,  kept  a  boarding  house  in  Cedar 
Eapids,  and  claims  that  in  April,  1901,  the  Ewy.  Co. 
made  an  oral  contract  with  her  that  she  should  board  at 
least  60  of  the  Company's  employees  for  a  period  of  six 
months,  and  they  agreed  to  furnish  her  at  least  that 
number.  That  she  agreed  to  take  such  boarders  at  the 
price  named,  but  that  the  Company  sent  her  only  about 
20  boarders,  and  that  in  June,  they  refused  to  send  her 
any  more  boarders.    The  statute  of  frauds  was  pleaded. 

Point  Involved:  Whether  the  agreement  by  the  Com- 
pany  with  the  plaintiff  that  the  Company  would  pay  her 
if  she  should  board  a  number  of  employees  to  be  fur- 
nished by  the  Company,  was  a  promise  to  answer  for  the 


STATUTE  OF  FRAUDS  145 

debt  of  another  and  therefore  not  enforceable  unless  in 
writing. 

"*  *  *  It  is  said  in  the  first  place  that  the  oral 
contract  sued  upon  was  within  the  statute  of  frauds, 
there  being  no  written  or  competent  evidence  to  estab- 
lish the  same.     *     *     * 

"But,  *  *  *  the  objection  is  not  well  taken.  The 
agreement  wTas  with  the  company  to  board  its  employees, 
and  plaintiff  was  to  be  paid  by  tne  company.  There  was 
no  promise  to  answer  for  the  debt,  default  or  miscar- 
riage of  another.     *     *     * 

Question  89:  (1.)  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 

(2.)  A,  being  a  stranger  in  the  City  of  Chicago  and  desiring 
to  obtain  board  at  a  certain  hotel,  has  his  friend  B  come  to  the 
hotel  and  promise  the  manager  that  if  A  does  not  pay  his  hotel 
bill,  he,  B,  will  pay  it.  A  leaves  without  paying  his  bill  and  the 
hotel  sues  B.  B  pleads  that  he  is  not  bound  on  his  promise 
because  it  was  not  in  writing  as  required  by  the  statute  of 
frauds.  Would  you  distinguish  this  case  from  the  case  above  V 
Why? 

(3.)  A  desires  to  open  up  a  retail  store  and  for  that  purpose 
to  procure  goods  from  the  M.  Wholesale  House.  He  goes  to  the 
M.  House  in  company  with  his  friend  B,  a  merchant  who  already 
has  a  line  of  credit  with  the  M.  Wholesale  House.  B  makes  an 
oral  statement  which,  in  a  suit  afterwards  brought  by  the 
Wholesale  House  against  B  (A  becoming  insolvent)  is  alleged  by 
the  House,  to  have  been  in  these  words:  "Let  A  have  goods  up 
to  $500  and  charge  it  to  my  account,"  but  which  is  alleged  by 
A  to  have  been :  ' '  Let  A  have  goods  up  to  $500  and  if  he  doesn  't 
pay,  you  may  look  to  me."  What  substantial  difference  would 
the  different  statements  make? 

(Note:  If  one  promises  to  pay  for  goods  procured  by  an- 
other, it  is  evident  he  may  thereby  either  incur  a  primary  debt 
of  his  own,  or  a  debt  that  is  merely  collateral  to  the  debt  of 
another.  As  an  extreme  illustration,  A  finds  a  tramp  on  the 
street  and  asks  M  to  let  him  have  a  new  suit  of  clothes  and 
charge  it  to  A.  Clearly  this  is  not  a  promise  to  answer  for  the 
debt  of  another,  as  M  looked  solely  to  A,  as  his  debtor,  no  mat- 


146  CONTRACTS 

ter  who  else  might  have  been  benefited.  So  the  party  to  whom 
the  goods  were  delivered  might  be  a  responsible  merchant,  and 
yet  M  might  look  entirely  to  the  sponsor.  In  such  a  case  the 
statute  of  frauds  is  no  defense.  But  if  any  credit  is  extended  to 
the  other,  then  the  promise  is  to  answer  for  the  debt  of  another 
and  is  not  enforceable  unless  in  writing  and  signed. ) 

Case  No.  90.  Lusk  v.  Throop,  189  Illinois  Eeports, 
127. 

Mr.  Justice  Magrttder  delivered  the  opinion  of  the 
court:  "*  *  *  If  the  plaintiff's  books  show  that  the  de- 
fendant was  not  originally  indebted  there,  but  that  the 
goods  were  charged  against  the  person  receiving  them, 
this  fact  if  unexplained  by  other  circumstances,  would 
be  strong  evidence  going  to  show  that  credit  was  given 
the  person  receiving  the  goods :  *  *  *  but  it  is  not 
conclusive  evidence  of  such  fact.  *  *  *  It  might  be 
rebutted  by  other  evidence  of  a  more  convincing  char- 
acter and  this  is  a  question  for  the  consideration  of 
the  jury  to  be  determined  from  all  the  circumstances  of 
the  case.    *     *     •" 

Question  90:  To  what  extent  does  the  Court  decide  that  the 
merchant's  book  entries  may  show  to  whom  credit  was  given? 

Case  No.  91.    Warren  v.  Smith,  24  Texas  Eeports,  484. 

Facts:  The  evidence  of  Smith,  the  plaintiff,  tended  to 
prove  that  Royalls  &  Jackson  owed  Smith,  the  plaintiff, 
a  sum  of  money  and  that  these  parties  being  present  and 
also  Warren,  Warren  orally  agreed  to  pay  Smith  the 
amount  owed  him  by  Royalls  and  Jackson,  and  Smith, 
the  plaintiff,  agreed  to  this  and  thereupon  released 
Royalls  and  Jackson  of  their  debt.  Defendant,  Warren, 
claims  the  statute  of  frauds  as  a  bar. 

Point  Involved:  Whether  a  promise  to  assume  an- 
other's debt  under  an  arrangement  with  the  creditor  and 
the  debtor  by  which  the  original  debtor  is  released  upon 
such  assumption  is  within  the  statute  of  frauds. 


STATUTE  OF  FRAUDS  147 

Bell,  J. :  "  *  *  *  It  is  well  settled  that  the  clause 
of  the  statute  of  frauds  which  relates  to  promises  to 
answer  for  the  debt,  default  or  miscarriage  of  another 
person,  has  reference  to  promises  which  are  distinctively 
collateral  to  the  undertaking  of  the  party  originally  li- 
able. If  the  promise  to  answer  for  the  debt  of  another  is 
collateral  only,  and  if  the  original  liability  continues  to 
subsist,  the  collateral  promise  is  within  the  statute;  but 
if,  by  the  new  promise,  the  original  liability  is  extin- 
guished, then  the  new  promise  is  not  within  the  statute, 
which  need  not  be  in  writing.     *     *     *" 

Question  91:  What  were  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case  ? 

Case  No.  92.  Spadone  v.  Eeed  and  Thompson,  7  Bush's 
Eeports  (Ky.)  455. 

Facts:  Spadone  sued  Reed  as  his  original  debtor  and 
Thompson  as  beneficiary  of  an  alleged  agreement  where- 
by Thompson  agreed  with  Reed  to  pay  Reed's  debt  to 
Spadone. 

Point  Involved:  Whether  a  promise  to  a  debtor  to  pay 
his  debt  to  the  creditor,  is  a  promise  within  the  statute 
of  frauds. 

Judge  Lindsay  :  *  *  *  *  *  The  statute  of  frauds  can- 
not be  made  available  as  a  defense  to  this  action.  The 
promise  of  Thompson  to  pay  the  debt  of  Reed  was  not 
made  to  Reed's  creditor,  but  directly  to  Reed  himself 
and  therefore  can  be  enforced  though  not  in  writing. ' ' 

Question  92:  What  were  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case  ? 

Sec.  68.  Promises  in  Consideration  of  Marriage  Must 
Be  Proved  by  Written  Evidence  Signed  by  the  Party 
Sought  to  Be  Charged. 

Case  No.  93.     Austin  v.  Kuehn,  211  Illinois,  113. 
Statement  of  Facts:  C.  M.  A.  files  her  claim  against  the 


148  CONTRACTS 

estate  of  J.  E.  Baker,  alleging  a  promise  by  Baker  to  pay 
her  $7,500  when  she  should  marry  a  certain  person  whom 
she  afterwards  in  consideration  thereof  did  marry. 

Point  Involved:  That  a  promise  made  in  consideration 
of  marriage  is  not  enforceable  unless  in  writing. 

Mr.  Justice  Wilkins  delivered  the  opinion  of  the 
Court:  "*  *  *  The  Statute  of  Frauds  provides:  'No 
action  shall  be  brought  whereby  to  charge  *  *  * 
any  person  upon  any  agreement  made  upon  considera- 
tion of  marriage  *  *  *  unless  the  promise  or  agree- 
ment upon  which  said  action  shall  be  brought,  or  some 
memorandum  or  note  thereof,  shall  be  in  writing  and 
signed  by  the  party  to  be  charged  therewith,  or  some 
person  thereunto  by  him  lawfully  authorized.  Saylor 
(a  witness)  testified  that  deceased,  *  *  *  gave  wit- 
ness a  card  with  the  name  'James  E.  Baker'  printed  on 
one  side  of  it  and  on  the  other  '  $7,500.'  This  card  was 
not  produced  in  evidence,  and  even  if  it  had  been,  it  was 
not  such  an  agreement,  note  or  memorandum,  in  writing, 
as  is  required  by  the  foregoing  statute.  The  alleged 
promise  being  oral  and  given  originally  in  consideration 
of  marriage,  was  within  the  statute  of  frauds  and  no  ac- 
tion could  be  maintained  upon  it.     *     *     *" 

Question  93:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  the  above  case. 

Case  No.  91  Withers  v.  Richardson,  5  T.  B.  Monroe, 
94. 

Judge  Mills:  "This  is  an  action  of  assumpsit  on  a 
promise  to  marry,  and  a  verdict  and  judgment  for  the 
plaintiff  below;  to  reverse  which,  this  writ  of  error  is 
prosecuted. 

<<*  #  *  rjijjg  (jefen(jant  pleaded  that  the  contract 
was  in  parol  only,  and  relied  on  the  statute  *  *  *(of 
frauds).  *  *  *  It  has  never  been  held  that  the  words 
of  the  statute  'any  agreement  made  upon  consideration 


STATUTE  OF  FRAUDS  149 

of  marriage'  meant  or  included  promises  to  marry.  It 
would  be  imputing  to  the  legislature  too  great  an  ab- 
surdity, to  suppose  that  they  had  enacted  that  all  our 
courtships,  to  be  valid,  must  be  in  writing.     *     *     *" 

Question  94:  Does  the  statute  of  frauds  cover  mutual  prom- 
ises to  marry  ? 

Sec.  69.  Contracts  for  the  Sale  of  Lands  or  any  Interest 
in  or  Concerning  Them  Must  Be  Proved  by  Written 
Evidence  Signed  by  the  Party  Sought  to  Be  Charged. 

Case  No.  95.  Kirkeby  v.  Erickson,  90  Minnesota  Ke- 
ports,  299. 

Facts:  Suit  for  damages  for  breach  of  an  oral  con- 
tract whereby  plaintiff  sold  defendant  growing  wild 
grass  to  be  cut  by  the  defendant.  Defense,  the  statute 
of  frauds. 

Point  Involved:  Whether  a  sale  of  growing  wild  grass 
to  be -cut  by  the  vendee,  is  a  contract  creating  an  inter- 
est in  real  estate  and  therefore  not  enforceable  unless 
in  writing. 

Collins,  J.:  "•  *  *  The  grass  which  was  the  sub- 
ject of  the  oral  contract  was  a  part  of  the  plaintiff's 
real  estate,  and  the  agreement  was  void,  because  it  at- 
tempted to  create  an  estate  in  land,  and  was  not  in  writ- 
ing. *  *  *  At  common  law,  grasses  growing  from 
perennial  roots  are  regarded  as  fructus  naturales,  and 
while  unsevered  from  the  soil,  are  considered  as  per- 
taining to  the  realty.  *  *  *  In  this  particular  case, 
the  right  of  the  defendant  to  enter  upon  plaintiff's  prem- 
ises for  the  purpose  of  cutting  and  removing  the  grass 
was  implied  from  the  fact  of  the  sale.  *  *  *  Such  a 
case  must  be  distinguished  from  one  where  the  vendor  of 
the  property  sold  is  to  sever  it  from  the  soil  himself. 
Verbal  sales  of  that  character  have  frequently  upheld 
as  not  within  the  statute.     *     *     *" 


150  CONTRACTS 

Question  95:  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  the  above  ease? 

(2.)  What  are  fructus  naturalesf    Fructus  industrials  ?    • 
(3.)  What  did  the  court  say  with  reference  to  distinguishing 
this  case  from  one  in  which  the  vendor  is  to  cut  the  grass? 

(Note :    See  also  next  case.) 

Case  No.  96.  Dorris  v.  Kings,  54  S.  W.  Rep.  (Tenn.) 
683. 

Statement  of  Facts:  Suit  upon  an  alleged  contract 
whereby  defendants  agreed  to  furnish  plaintiffs  all  the 
merchantable  timber  on  defendants'  lands,  cut  into  saw- 
logs  of  the  proper  length  for  manufacture  into  lumber. 
Defense,  the  statute  of  frauds. 

Point  Involved:  Whether  a  contract  to  sell  logs  to  be 
furnished  and  delivered  by  the  seller  from  timber  now 
growing,  is  a  contract  creating  an  interest  in  real  estate, 
or  a  contract  to  sell  personal  property. 

Babton,  J.:  "*  *  *  This,  as  we  understand  the 
law,  is  simply  an  executory  contract  to  sell  and  deliver 
certain  personal  property.  It  does  not  purport  to  be 
a  contract  selling  them  (Dorris  &  Sons)  certain  trees 
standing  on  the  land,  nor  giving  them  a  license  to  go  upon 
the  land  to  get  certain  trees,  but  is  a  contract  on  the  part 
of  the  defendants  to  sever  or  cut  and  deliver  all  the  mer- 
chantable timber.  In  the  case  of  New  York  &  E.  T.  Iron 
Co.  v.  Green  County  Iron  Co.,  11  Heisk.  434,  *  *  * 
Judge  Freeman,  *  *  *  said:  'This  was  a  contract 
for  the  sale  of  personality ;  that  is,  an  agreement  to  sell 
the  timber  designated.  But  the  property  did  not  pass 
with  the  timber  until  it  could  be  used  or  received  by  the 
purchaser, — at  any  rate,  not  until  cut  and  corded,  as 
it  was  to  be  paid  for  by  the  cord  as  used. '  *  *  *  This 
case  is  much  stronger.  ******  we  think  that 
the  portion  of  the  contract  for  the  breach  of  which  this 
suit  was  brought,  was  clearly  only  an  executory  contract 
for  the  sale  and  delivery  of  severed  timber,  personal 
property,  and  therefore  not  within  the  statute  of  frauds. 


STATUTE  OF  FRAUDS  151 

Question  96:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  Why  is  there  a  difference  between  this  case  and  Case 
No.  95? 

(3.)  A  has  a  coal  mine.  He  makes  a  contract  with  B  whereby 
B  is  to  be  allowed  to  come  into  the  mine  and  dig  a  certain  quan- 
tity of  coal.  He  makes  another  contract  with  C,  whereby  he  is 
to  sell  and  deliver  at  C  's  factory  100  tons  of  coal,  from  the  coal, 
which  is  not  yet  severed.  Both  contracts  are  oral.  So  far  as  the 
section  of  the  statute  of  frauds  relating  to  real  estate  is  con- 
cerned, can  either  party  enforce  his  contract  ?    Why  ? 

(Note:  The  student  is  sometimes  confused  on  cases  of  this 
sort  because  the  statute  of  frauds  also  relates  to  sales  of  per- 
sonal property.  But  it  must  be  remembered  that  the  section  in 
reference  to  personal  property  is  not  in  force  in  all  jurisdictions 
(though  in  most),  and  that  under  that  section  sales  of  personal 
property  are  enforceable  though  not  in  writing  if  there  is  a  part 
delivery  and  acceptance,  or  a  part  payment.) 

Case  No.  97.    Bull  v.  Griswold,  19  111.  631. 
Point  Involved:  Whether  a  sale  of  growing  crops  is  a 
sale  of  real  estate. 

Caton,  C.  J. :  "*  *  *  Growing  crops  are  so  far 
personalty  that  they  may  be  sold  and  transferred  by 
parol.  *  *  *  They  partake  of  realty,  no  doubt,  so 
far  as  to  pass  by  a  deed  of  the  land  as  incident  to  it,  and 
so  it  is  with  many  other  articles  which  are  well  settled 
to  be  personal  property,  as  fixtures  of  trade  or  machin- 
ery erected  for  mechanical  purposes.  If  the  wheat  was 
sold  by  parol  by  the  defendant  to  the  plaintiff,  that  vested 
in  him  a  good  title. 

Question  97:  (1.)  Are  growing  crops  considered  as  real 
property  or  personal  property  so  far  as  a  sale  of  the  crop  is 
concerned  ? 

(2.)  What  is  the  rule  where  the  land  is  sold  upon  which  the 
crops  are  growing,  if  there  is  no  reservation  of  such  crops  ? 

(3.)  To  what  other  property  did  the  court  liken  growing 
crops  ? 

(4.)  Distinguish  this  case  from  case  95. 


152  CONTRACTS 

(Note  as  to  short  term  leases:  Short  term  leases,  generally 
in  the  American  statutes,  for  the  term  of  one  year,  or  in  some 
states  for  three  years,  are  excepted  from  the  operation  of  the 
statute.  The  question  arises  whether  this  provision  is  to  be  con- 
strued in  connection  with  the  provision  of  the  statute  in  refer- 
ence to  contracts  that  are  not  to  be  performed  within  a  year 
from  the  making  thereof.  That  is,  if  an  oral  lease  for  one  year 
is  valid  by  the  statute,  is  such  lease  enforceable  if  it  is  to  com- 
mence in  futuro,  so  that  it  cannot  be  completed  for  more  than 
a  year.  Some  of  the  statutes  provide  that  a  lease  for  one  year 
from  the  making  thereof,  need  not  be  in  writing,  but  most  of 
the  statutes  omit  that  phrase.  It  is  held  in  some  jurisdictions 
that  a  lease  to  commence  in  futuro  must  end  within  a  year  from 
the  time  it  is  made,  otherwise  it  is  unenforceable  for  any  period. 
See  Wheeler  v.  Frankenthal,  78  111.  124.  But  other  cases  hold 
that  a  lease  for  the  full  year,  though  to  begin  in  the  future,  is 
valid.    See  Young  v.  Dake,  5  N.  Y.  463.) 

Sec.  70.  Contracts  That  Cannot  Be  Performed  Within 
a  Year  from  the  Making  Thereof  Must  Be  Proved  by 
Written  Evidence  Signed  by  the  Party  Sought  to  Be 
Charged. 

Case  No.  98.    Chase  v.  Hinkley,  126  Wis.  75. 

Facts:  A  sued  B  for  $39.00  for  services  rendered  to  B. 
B's  defense  was  that  A  contracted  to  work  for  him  for 
one  year,  but  worked  only  a  short  time  and  broke  his 
contract  by  quitting  without  cause.  The  evidence  showed 
that  in  October,  1904,  A  orally  agreed  to  work  for  B  for 
one  year  beginning  the  following  Monday ;  that  A  began 
work  and  performed  services  of  the  reasonable  value 
(as  on  an  implied  contract)  of  $39.00  and  then  quit.  A 
maintains  that  B  cannot  prove  the  alleged  contract  by 
way  of  defense,  the  same  being  oral  and  therefore  within 
the  statute  of  frauds. 

Point  Involved:  Whether  a  contract  for  service  which 
cannot  be  performed  within  a  year  from  the  making 
thereof,  must  be  in  writing  in  order  to  be  proved  in  a 
judicial  proceeding. 

Marshall,  J. :  "*     *     *    The  excess  of  two  days  was 


STATUTE  OF  FRAUDS  153 

just  as  efficient  as  a  longer  period  to  render  the  agree- 
ment void  under  *  *  *  (the  statute  of  frauds). 
*  *  *  The  fact  that  the  period  of  service  agreed  upon 
was  to  extend  for  one  year  from  the  time  the  perform- 
ance commenced  does  not  take  the  case  out  of  the  stat- 
ute, for,  where  performance  is  to  commence  in  the  fu- 
ture, for  the  purposes  of  the  statute  the  period  to  be  con- 
sidered is  that  beginning  with  the  date  of  the  agreement 


Question  98:  What  were  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case  ? 

Case  No.  99.  Warner  v.  Texas  &  Pacific  E.  Co.,  164 
U.  S.  418. 

Facts:  "This  was  an  action  brought  May  9,  1892,  by 
Warner  against  the  T.  &  P.  E.  Co.,  upon  a  contract  made 
in  1874,  by  which  it  was  agreed  between  the  parties  that, 
if  the  plaintiff  would  grade  the  ground  for  a  switch,  and 
put  on  the  ties,  at  a  certain  point  on  the  defendant's 
railroad,  the  defendant  would  put  down  the  rails,  and 
maintain  the  switch  for  the  plaintiff's  benefit  for  ship- 
ping purposes,  as  long  as  he  needed  it.  The  defendant 
pleaded  that  the  contract  was  oral  and  within  the  statute 
of  frauds,  because  it  was  'not  to  be  performed  within 
one  year  from  the  making  thereof,     *     *     •.» " 

Point  Involved:  Whether  a  contract  that  may  be  per- 
formed within  a  year  (though  the  possibility  be  remote), 
is  a  contract  covered  by  the  language  of  the  statute  of 
frauds  "not  to  be  performed  within  a  year,"  in  other 
words  whether  the  statute  requires  contracts  that  may  be 
performed  within  a  year  but  may  take  longer  than  that 
time,  or  simply  contracts  that  cannot  be  performed  within 
a  year  to  be  in  writing. 

Mr.  Justice  Gray:  "In  the  earliest  reported  case  in 
England  upon  this  clause  of  the  statute  regard  seems 
to  have  been  had  to  the  time  of  actual  performance  in 
deciding  that  an  oral  agreement  that,  if  the  plaintiff 


154  CONTRACTS 

would  procure  a  marriage  between  the  defendant  and  a 
certain  lady,  the  defendant  would  pay  him  fifty  guineas, 
was  not  within  the  statute;  Lord  Holt  saying:  'Though 
the  promise  depends  upon  a  contingent,  the  which  may 
not  happen  in  a  long  time,  yet,  if  the  contingent  happen 
within  a  year,  the  action  shall  be  maintainable,  and  is  not 
within  the  statute.'  Francam  v.  Foster,  (1692)  Skin. 
326;  S.  0.,  Holt,  25. 

"A  year  later,  another  case  before  Lord  Holt  pre- 
sented the  question  whether  the  words,  'agreement  not 
to  be  performed  within  one  year,'  should  be  construed  as 
meaning  every  agreement  which  need  not  be  performed 
within  the  year,  or  as  meaning  only  an  agreement  which 
could  not  be  performed  within  the  year,  and  thus,  ac- 
cording as  the  one  or  the  other  constructions  should  be 
adopted,  including  or  excluding  an  agreement  which 
might  or  might  not  be  performed  within  the  year,  with- 
out regard  to  the  time  of  actual  performance.  The  lat- 
ter was  decided  to  be  the  true  construction. 

(Here  the  Court  discusses  numerous  authorities.) 

"In  the  case  at  bar,  the  contract  between  the  railroad 
company  and  the  plaintiff,  as  testified  to  by  the  plaintiff 
himself,  who  was  the  only  witness  upon  the  point,  was 
that,  if  he  would  furnish  the  ties  and  grade  the  ground 
for  the  switch  at  the  place  where  he  proposed  to  erect 
a  sawmill,  the  railroad  company  would  "put  down  the 
iron  rails  and  maintain  the  switch  for  the  plaintiff's 
benefit  for  shipping  purposes  as  long  as  he  needed  it. ' ' 

"The  parties  may  well  have  expected  that  the  con- 
tract would  continue  in  force  for  more  than  one  year. 
It  may  have  been  very  improbable  that  it  would  not  do 
so ;  and  it  did,  in  fact,  continue  in  force  for  a  much  longer 
time.  But  they  made  no  stipulation  which,  in  terms,  or 
by  reasonable  inference,  required  that  result.  The  ques- 
tion is  not  what  the  probable,  or  expected,  or  actual  per- 
formance of  the  contract  was,  but  whether  the  contract, 
according  to  the  reasonable  interpretation  of  its  terms, 
required  that  it  should  not  be  performed  within  the  year. 
No  definite  term  of  time  for  the  performance  of  the 


STATUTE  OF  FRAUDS  155 

contract  appears  to  have  been  mentioned  or  contemplated 
by  the  parties,  nor  was  there  any  agreement  as  to  the 
amount  of  lumber  to  be  sawed  or  shipped  by  the  plain- 
tiff, or  as  to  the  time  during  which  he  should  keep  up 
his  mill. 

"The  contract  of  the  railroad  company  was  with,  and 
for  the  benefit  of,  the  plaintiff  personally.  The  plain- 
tiff's own  testimony  shows  (although  that  is  not  essen- 
tial) that  he  understood  that  the  performance  of  the 
contract  would  end  with  his  own  life.  The  obligation 
of  the  railroad  company  to  maintain  the  switch  was  in 
terms  limited  and  restricted  by  the  qualification  'for  the 
plaintiff's  benefit  for  shipping  purposes  as  long  as  he 
needed  it,'  and  no  contingency  which  should  put  an  end 
to  the  performance  of  the  contract,  other  than  his  not 
needing  the  switch  for  the  purpose  of  his  business,  ap- 
pears to  have  been  in  the  mouth  or  in  the  mind  of  either 
party.  If,  within  a  year  after  the  making  of  the  con- 
tract, the  plaintiff  had  died,  or  had  abandoned  his  whole 
business  at  this  place,  or  for  any  other  reason  had  ceased 
to  need  the  switch  for  the  shipping  of  lumber,  the  rail- 
road company  would  have  been  no  longer  under  any  obli- 
gation to  maintain  the  switch,  and  the  contract  would 
have  been  brought  to  an  end  by  having  been  fullv  per- 
formed. 

"The  complete  performance  of  the  contract  depend- 
ing upon  a  contingency  which  might  happen  within  the 
year,  the  contract  is  not  within  the  statute  of  frauds  as 
an  'agreement  which  is  not  to  be  performed  within 
the  space  of  one  year  from  the  making  thereof.'  " 

Question  99:  (1.)  State  the  facts  in  the  above  case,  the  ques- 
tion presented  and  the  Court's  decision. 

(2.)  A  orally  agrees  to  support  B  for  life.  B  is  fifty  years 
of  age  and  in  fair  health.  Is  the  contract  enforceable?  (Heath 
v.  Heath,  31  Wis.  223.) 

Sec.  71.    Contracts  of  Sale  of  Goods,  Wares  and  Mer- 
chandise, of  a  Certain  Price  or  Upwards  Are  Not  En- 


156  CONTRACTS 

forceable  Unless  (1)  in  Writing  and  Signed,  or  (2) 
i     There  Is  Part  Delivery  and  Acceptance,  or,  (3)  There 
Is  Part  Payment. 

(Note:  This  provision  not  in  force  in  all  states.) 

Case  No.  100.    Baldy  v.  Parker,  2  B.  &  C.  37. 

Facts:  A  went  to  the  shop  of  B  and  Company,  linen 
drapers,  and  contracted  for  the  purchase  of  various 
articles,  each  of  which  was  priced  below  the  amount 
named  in  the  statute  of  frauds,  but  the  whole  aggregated 
more  than  that  amount.  He  afterwards  refused  to 
take  the  goods  and  When  sued  for  the  breach  of  the  con- 
tract, plead  the  statute  of  frauds.  But  it  was  contended 
that  the  statute  did  not  apply  because  each  article  was 
separately  priced  at  a  sum  below  the  statutory  amount. 

Point  Involved:  "Whether  a  sale  of  various  articles 
separately  priced  is  one  entire  sale  or  several  sales 
within  the  statute  of  frauds. 

Bayley,  Justice  :  "*  *  *  The  question  is,  whether 
there  was  a  separate  contract  for  each  article.  The  stat- 
ute (of  frauds)  was  passed  to  guard  against  frauds  and 
perjuries ;  *  *  *  the  legislature  thought  that  a  con- 
tract to  the  extent  of  10 1.  might  be  sufficient  to  induce 
the  parties  to  it  to  bring  tainted  evidence  into  Court.  Now 
it  is  conceded  here  that  on  the  same  day,  and  indeed  at 
the  same  meeting,  the  defendant  contracted  with  the 
plaintiffs  for  the  purchase  of  goods  to  a  much  greater 
amount  than  10 1.  Had  the  entire  value  been  set  upon 
the  whole  goods  together  there  cannot  be  a  doubt  of  its 
being  a  contract  for  a  greater  amount  than  10 1.,  within 
the  seventeenth  section  of  the  statute;  and  I  think  that 
the  circumstance  of  a  separate  price  being  fixed  upon 
each  article  makes  no  such  difference  as  will  take  the 
case  out  of  the  operation  of  that  law.  It  has  been  asked, 
what  interval  of  time  must  elapse  between  the  purchase 
of  different  articles  in  order  to  make  the  contract  sep- 
arate, and  the  case  has  been  put  of  a  purchaser  leaving 
a  shop  after  making  one  purchase  and  returning  after 


STATUTE  OP  FRAUDS  157 

an  interval  of  five  or  ten  minutes  and  making  another. 
If  the  return  to  the  shop  were  soon  enough  to  warrant  a 
supposition  that  the  whole  was  intended  to  be  one  trans- 
action, I  should  hold  it  one  entire  contract  within  the 
meaning  of  the  statute. 

Question  100:  What  are  the  facts  in  the  above  case,  and  the 
rule  thereupon? 

Case  No.  101.    Goddard  v.  Binney,  115  Mass.  450. 

Facts:  A  ordered  of  B,  a  carriage  manufacturer,  a 
buggy,  to  be  built  specially  for  A,  according  to  oral  speci- 
fications given,  to  include  A's  monogram  and  initials.  B 
built  the  buggy.  And  on  an  attempt  to  charge  A  on  the 
contract,  A  plead  the  statute  of  frauds.  The  question  was 
whether  this  was  a  contract  "for  the  sale"  of  goods,  and 
therefore  within  the  statute,  or  a  contract  for  the  manu- 
facture of  goods,  and  not  within  the  meaning  of  the 
statute. 

Point  Involved:  What  is  a  contract  of  sale  within 
the  meaning  of  the  statute  of  frauds. 

Ames,  J.,  delivered  the  opinion  of  the  Court:  "*  *  * 
According  to  a  long  course  of  decisions  in  New  York, 
and  in  some  other  states  of  the  Union,  an  agreement  for 
the  sale  of  any  commodity  not  in  existence  at  the  time, 
but  which  the  vendor  is  to  manufacture  or  to  put  into 
condition  to  be  delivered  (such  as  flour  from  wheat  not 
yet  ground,  or  nails  to  be  made  from  iron  in  the  vendor's 
hands),  is  not  a  contract  of  sale  within  the  meaning  of 
the  statute.  *  *  *  In  England,  on  the  other  hand, 
the  tendency  of  the  recent  decisions  is  to  treat  all  con- 
tracts of  such  a  kind  intended  to  result  in  a  sale  as  sub- 
stantially contracts  for  the  sale  of  chattels;  and  the  de- 
cision in  Lee  v.  Griffin,  1  B.  and  S.,  272,  goes  so  far 
as  to  hold  that  a  contract  to  make  and  fit  a  set  of  arti- 
ficial teeth  for  a  patient  is  essentially  a  contract  for  the 
sale  of  goods  and,  therefore,  is  subject  to  the  provisions 
of  the  statute.     *     *     * 


158  CONTRACTS 

' '  In  this  commonwealth  a  rule  avoiding  both  these  ex- 
tremes was  established  *  *  *.  The  effect  of  these 
decisions  we  understand  to  be  this,  namely,  that  a  con- 
tract for  the  sale  of  articles  then  existing,  or  such  as 
the  vendor  in  the  ordinary  course  of  his  business  manu- 
factures or  procures  for  the  general  market,  whether  on 
hand  at  the  time  or  not,  is  a  contract  for  the  sale  of  goods 
to  which  the  statute  applies.  But  *  *  *  if  the  goods 
are  to  be  manufactured  especially  for  the  purchaser,  and 
upon  his  special  order,  and  not  for  the  general  market, 
the  case  is  not  within  the  statute    *     *     *." 

(The  Uniform  Sales  Act  adopts  this  last  named  view,  called 
the  Massachusetts  rule.) 

Question  101:  What  is  the  English  rule,  the  New  York  rule 
and  the  Massachusetts  rule,  as  to  whether  a  contract  is  one  of 
"sale"  or  of  "manufacture"  within  the  statute  of  frauds? 
What  is  the  rule  adopted  by  the  Uniform  Sales  Act? 

(Note:  The  Uniform  Sales  Act  being  now  in  force  in  New 
York,  the  rule  has  been  changed  in  that  state  to  the  Massachu- 
setts rule.) 

(3)    What  Amounts  to  a  Compliance  with  the  Statute. 

§  72.  The  memorandum  and  signa-       §  74.  Compliance    by    payment    in 
ture.  whole  or  part   in   sales  of 

§  73.  Compliance    by    delivery    and  personal  property, 

acceptance  in  sales  of  per- 
sonal property. 

Sec.  72.    The  Memorandum  and  the  Signature. 

Case  No.  102.  Gault  v.  Stormont,  51  Mich.  636. 
Facts:  Plaintiff  Gault  owned  a  house  and  two  lots  in 
Wyandotte,  Michigan,  and  on  April  26,  1881,  contracted 
to  sell  them  to  the  defendant,  Stormont.  Defendant  paid 
$75.00  down,  and  plaintiff  gave  him  the  following  re- 
ceipt: 

"Wyandotte,  April  26,  1881. 
"Received   from   George   Stormont   the    sum  of 
Seventy -five  dollars  as  part  of  the  principal  of  ten 


STATUTE  OF  FRAUDS  159 

hundred  and  fifty  dollars  on  sale  of  my  house  and 

two  lots  on  corner  of  Superior  and  Second  streets 

in  this  city.  David  Gault." 

Gault  being  afterwards  unable  to  give  a  deed  because 

his  wife  would  not  join  therein,  brings  suit  against  Stor- 

mont  for  the  possession  of  the  land  which  he  had  allowed 

Stormont  to  enter. 

Point  Involved:  "Whether  under  the  statute  of  frauds 
a  memorandum  which  does  not  state  the  terms  of  sale 
is  a  sufficient  memorandum  to  bind  the  party  signing  the 
same. 

Cooley,  J.:  "*  *  *  There  was  no  written  evi- 
dence of  the  sale  of  the  lots  except  the  receipt  which  was 
given  for  the  seventy-five  dollars,  and  that  was  insuffi- 
cient to  answer  the  requirements  of  the  statute  of  frauds, 
for  though  it  specified  the  purchase  price,  it  failed  to 
express  the  time  or  times  of  payment,  and  there  is  no 
known  and  recognized  custom  to  fix  what  is  thus  left 
undetermined.  A  memorandum  to  be  sufficient  under 
the  statute  must  be  complete  in  itself  and  leave  nothing 
to  rest  in  parol.  *  *  *"  (Held  memorandum  insuffi- 
cient.) 

Question  102 :  State  the  facts  in  the  above  case  and  show  why 
the  memorandum  set  out  was  not  a  sufficient  compliance  with 
the  statute  of  frauds. 

(Note :  By  statute  in  some  states  the  memorandum  need  not 
state  the  consideration,  which  may  be  proved  by  parol.  But  the 
memorandum  must  otherwise  be  complete  to  show  the  descrip- 
tion of  the  parties,  the  terms,  and  the  subject  matter.  If  the 
consideration  was  not  mentioned,  but  was  left  to  be  implied,  as 
in  cases  of  sales  of  personal  property  or  for  services,  the  memo- 
randum may  be  sufficient  to  bind  without  a  statement  as  to  the 
price.) 

Case  No.  103.  Louisville,  etc.,  Co.  v.  Lorick,  29  S.  C. 
533. 

Facts:  Plaintiff's  salesman,  under  verbal  instruc- 
tions from  defendant,  sent  a  written  order  to  plaintiff 


160  CONTRACTS 

to  ship  to  defendant  a  certain  amount  of  paint,  at  a  stated 
price,  payable  in  60  days.  After  the  goods  were  in  tran- 
sit, defendant  wrote :  " Don't  ship  paint  ordered  through 
your  salesman;  we  have  concluded  not  to  handle  it" 
Plaintiff  refused  to  accept  this  revocation  and  sued  for 
breach.  Defendant  plead  the  statute  of  frauds,  namely, 
that  there  was  no  delivery  and  acceptance,  no  payment 
and  no  memorandum  signed  by  defendant. 

Point  Involved:  Whether  and  under  what  circum- 
stances the  "memorandum"  required  by  the  statute  of 
frauds  may  consist  in  a  number  of  writings. 

Me.  Justice  McIver  delivered  the  opinion  of  the 
Court :  ' '  *  *  *  It  is  quite  certain  that  there  was  no 
formal  agreement  in  writing,  signed  by  the  party  to  be 
charged  *  *  *  and  we  think  it  equally  certain  that 
there  was  no  single  instrument  or  memorandum  in  writ- 
ing sufficient  to  satisfy  the  requirements  of  the  statute; 
for  the  letter  of  the  defendants  *  *  *  did  not  spec- 
ify the  necessary  particulars,  as  to  quantity,  nature  and 
price  of  the  goods  *  *  *  and  the  copy  of  the  order 
sent  by  the  salesman  to  the  plaintiff,  which  did  contain 
all  the  necessary  particulars,  was  not  signed  by  the  de- 
fendant. It  is  plain,  therefore,  that  neither  one  of  these 
papers  standing  alone,  would  be  sufficient.  But  it  is  well 
settled  that  the  whole  agreement  need  not  appear  in  a 
single  writing,  but  may  be  made  out  from  several  in- 
struments or  written  memoranda,  referring  one  to  the 
other,  and  which,  when  connected  together,  are  found 
to  contain  all  the  necessary  elements,  and  the  precise, 
practical  question  in  this  case  is,  whether  the  letter  of  de- 
fendants can  be  connected  with  the  written  order  sent 
by  the  salesman,  so  that  the  two  together  may  consti- 
tute a  sufficient  note  or  memorandum  in  writing  to  sat- 
isfy the  requirements  of  the  statute.     *     *     * 

"It  seems  to  us  that  the  letter  of  defendants,  taken, 
as  it  must  be,  in  connection  with  the  order  sent  to  plain- 
tiff by  the  salesman  (of  plaintiff)  to  which  it  expressly 
referred,  and  which  was  in  writing,  and  specified  all  the 


STATUTE  OF  FRAUDS  161 

necessary  particulars  as  to  price,  quantity,  quality  and 
time  of  payment,  constituted  a  sufficient  note  or  mem- 
orandum in  writing  of  the  bargain  to  take  the  case  out 
of  the  statute  of  frauds     *     * 

(In  this  case,  which  held  there  was  a  sufficient  memorandum, 
signed  by  the  party  to  be  charged,  there  was  a  dissenting  opin- 
ion by  one  of  the  judges  that  the  letter  which  defendant  signed, 
and  which  contained  no  particulars,  did  not  sufficiently  refer 
to  the  order,  not  signed  by  defendant,  to  identify  or  incorporate 
it.  The  rule,  however,  is  that  the  writing  required  by  the  stat- 
ute may  be  one  or  a  series  of  writings  constituting  one  trans- 
action, which  are  all  signed,  or  which  are  sufficiently  referred  to 
by  the  one  that  is  signed.) 

Question  103:  What  were  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case  ? 

(Notice  how  this  case  illustrates  the  point  that  the  statute  of 
frauds  has  nothing  to  do  with  the  essential  validity  of  the  con- 
tract, but  only  with  the  evidence  to  prove  it.  Here,  a  party,  in 
his  very  attempt  to  break  a  contract,  furnished  the  proof  to  the 
other  party  that  there  was  such  a  contract.) 

Case  No.  104.  Clason  v.  Bailey,  14  Johns.  Rep.  (N.  Y.) 
484. 

Facts:    The  facts  are  stated  in  the  opinion. 

Points  Involved:  Whether  both  parties,  or  which 
party,  must  sign  the  agreement  or  memorandum; 
whether  the  signature  may  be  by  agent ;  whether  it  must 
be  at  the  bottom  of  the  memorandum,  and  whether  it  may 
be  by  lead  pencil. 

The  Chancellor:  "Isaac  Clason  employed  John 
Townsend  to  purchase  a  quantity  of  rye  for  him.  He, 
in  pursuance  of  this  authority,  purchased  of  Bailey  & 
Voorhees  3,000  bushels  at  $1.00  per  bushel,  and  at  the 
time  of  closing  the  bargain  he  wrote  a  memorandum  in 
his  memorandum  book  in  the  presence  of  Bailey  &  Voor- 
hees in  these  words : 

"  'February  29,  bought  for  Isaac  Clason  of  Bailey  & 


162  CONTRACTS 

Voorhees  3,000  bushels  of  good  merchantable  rye,  de- 
liverable from  the  5th  to  the  15th  of  April  next,  at  $1.00 
per  bushel,  and  payable  on  delivery.     *     *     *  ' 

"It  is  admitted  Clason  signed  this  contract  by  the  in- 
sertion of  his  name  by  his  authorized  agent  in  the  body 
of  the  memorandum.  *  *  *  It  is  a  point  settled  that 
if  the  name  of  a  party  appears  in  the  memorandum  and 
is  applicable  to  the  whole  substance  of  the  writing  and 
is  put  there  by  him  or  his  authority,  it  is  immaterial  in 
what  part  of  the  instrument  the  name  appears,  whether 
at  the  top,  in  the  middle  or  at  the  bottom.  *  *  *  Cla- 
son *s  name  was  inserted  in  the  contract  by  his  author- 
ized agent,  and  if  it  were  admitted  that  the  name  of  the 
other  party  was  not  there  by  their  direction,  yet  the 
better  opinion  is  *  *  *  that  it  is  sufficient  if  the 
agreement  be  signed  by  the  party  to  be  charged. 

"•  *  *  Clason,  who  signed  the  agreement,  and  is 
the  party  sought  to  be  charged,  is,  then,  according  to 
the  authorities,  bound  by  the  agreement  and  he  cannot 
set  up  the  statute  in  bar.     *     *     * 

"The  remaining  objection  is  that  the  memorandum 
was  made  with  a  lead  pencil.  The  statute  requires  a 
writing.  It  does  not  undertake  to  define  with  what  in- 
strument or  with  what  material  the  contract  shall  be 
written.  *  *  *  It  has  been  admitted  *  *  *  that 
printing  was  writing  within  the  statute,  and  *  *  * 
that  stamping  was  equivalent  to  signing  and  *  *  * 
that  making  a  mark  was  subscribing  within  the  act. 

"The  statute  of  frauds  *  *  *  did  not  require  any 
solemn  and  formal  instrument.  It  only  required  a  note 
or  memorandum,  which  imports  a  writing  done  on  the 
spot  in  the  moment  and  hurry  and  tumult  of  commer- 
cial business.  A  lead  pencil  is  generally  the  most  acces- 
sible and  convenient  instrument  of  writing  on  such  oc- 
casions and  I  see  no  reason  why  we  should  wish  to 
put  an  interdict  on  all  memoranda  written  with  a 
pencil.     *     *     *" 

Question  104:  Answer  the  questions  above  suggested  in  the 
"Points  involved"  in  this  case. 


STATUTE  OF  FRAUDS  163 

Sec.  73.    Compliance  by  Delivery  and  Acceptance  in  Sales 
of  Personal  Property. 

Case  No.  105.  Shindler  v.  Houston,  1  New  York,  261. 

Facts:  Suit  for  the  price  of  a  quantity  of  lumber. 
Plaintiff  was  owner  of  about  2,070  feet  of  curled  maple 
plank  scantling,  which  he  had  brought  to  Troy  in  a  boat, 
and  which,  after  being  inspected  and  measured,  was  piled 
on  the  dock  apart  from  any  other  lumber.  Soon  after 
this  the  plaintiff  and  defendant  met  at  the  place  where 
the  lumber  lay.  The  plaintiff  said  to  the  defendant, 
"What  will  you  give  me  for  the  plank?"  The  defend- 
ant said  he  would  give  three  cents  a  foot.  The  plaintiff 
then  asked, ' '  What  will  you  give  for  the  scantling  ? ' '  The 
defendant  replied,  "One  and  a  half  cents  a  foot."  The 
defendant  then  said,  "The  lumber  is  yours."  The  de- 
fendant thereupon  told  the  plaintiff  to  get  the  inspector 's 
bill  of  it  and  carry  it  to  Mr.  House,  who  would  pay  it. 
The  next  day  the  plaintiff  having  procured  the  in- 
spector's bill  presented  it  to  House,  who  refused  to  pay 
for  it.  There  was  no  note  or  memorandum  in  writing, 
nor  was  there  any  evidence  of  a  delivery  or  acceptance 
of  the  lumber,  except  as  above  stated.  At  the  prices 
agreed  on,  the  lumber  came  to  $52.51,  no  part  of  which 
was  ever  paid. 

Point  Involved:  What  constitutes  a  "delivery  and 
acceptance"  within  the  meaning  of  the  17th  section  of 
the  statute  of  frauds? 

Gakdixer,  J.:  "As  no  part  of  the  purchase  money 
was  paid  by  the  vendee,  the  contract  above  stated  was 
void  (voidable)  by  the  statute  of  frauds  *  *  *  un- 
less the  buyer  'accepted  and  received'  the  whole  or  part 
of  the  property  sold. 

"The  object  of  the  statute  was  not  only  to  guard  against 
the  dishonesty  of  parties  and  the  perjury  of  witnesses, 
but  against  the  misunderstanding  and  mistakes  of  hon- 
est men.  If  the  contract  is  reduced  to  writing,  and  'sub- 
scribed by  the  parties  to  be  charged  thereby,'  this  object 


164  CONTRACTS 

is  effectually  attained.  The  writing  becomes  its  own  in- 
terpreter. Where  this  is  omitted  but  the  vendee  has  paid 
part  of  the  price,  or  the  vendor  had  delivered  and  the 
buyer  has  accepted  a  portion  or  all  of  the  property,  upon 
the  strength  of  the  agreement,  these  acts  not  only  indi- 
cate deliberation  and  confidence  upon  the  part  of  the  con- 
tractors, but  they  furnish  unequivocal  evidence  of  the 
existence  of  a  contract  of  some  sort  between  them,  al- 
though its  terms  and  provisions  must  after  all  depend 
upon  the  recollection  of  witnesses. 

"The  case  before  us  is  destitute  of  all  such  collateral 
evidence.  No  acts  of  the  party  sought  to  be  charged  are 
proved.  We  are  presented  with  a  naked  verbal  agree- 
ment. The  declarations  relied  upon  as  evidence,  of  a 
delivery  and  acceptance  constitute  a  part  of  the  contract, 
and  of  course  are  obnoxious  to  all  the  evils  and  every  ob- 
jection against  which  it  was  the  policy  of  the  law  to 
provide. 

"The  acts  of  part  payment,  of  delivery  and  accept- 
ance mentioned  in  the  statute  are  something  over  and 
beyond  the  agreement  of  which  they  are  a  part  per- 
formance, and  which  they  assume  as  already  existing. 
The  entire  absence  of  such  evidence  distinguishes  the 
present  case  from  all  those  that  have  been  cited  by  the 

counsel  for  the  plaintiff  in  support  of  this  action. 
•     •     • 

"I  am  aware  that  there  are  cases  in  which  it  has  been 
adjudged,  that  where  the  articles  sold  are  ponderous, 
a  symbolical  or  constructive  delivery  will  be  equivalent 
in  its  legal  effect  to  an  actual  delivery.  The  delivery 
of  a  key  of  a  warehouse  in  which  goods  sold  are  depos- 
ited, furnishes  an  example  of  this  kind.  But  to  aid  the 
plaintiff,  an  authority  must  be  shown  that  a  stipulation 
in  the  contract  of  the  sale,  for  the  delivery  of  the  key 
or  other  indicia  of  possession  will  constitute  a  delivery 
and  acceptance  within  the  statute.  No  such  case  can  be 
found.  The  entire  contract  being  void  by  the  statute, 
the  stipulation  in  reference  to  a  constructive  delivery 
would  fall  with  the  other  provisions.     *     *     * 


STATUTE  OF  FRAUDS  165 

'  '  This,  I  apprehend,  is  the  correct  rule  and  it  is  obvious 
that  it  can  only  be  satisfied  by  something  done  subse- 
quent to  the  sale  unequivocally  indicating  the  mutual 
intentions  of  the  parties.  Mere  words  are  not  sufficient 
(3  Johns.  421).  Declarations  accompanying  an  act  and 
explanatory  of  it  are  undoubtedly  admissible  evidence, 
as  a  part  of  the  res  gestae.     *     *     * 

"The  language  is  unequivocal  and  demands  the  action 
of  both  parties,  for  acceptance  implies  delivery,  and 
there  can  be  no  complete  delivery  without  acceptance. 
The  defendant,  however,  said  nothing  and  did  nothing 
subsequent  to  the  agreement,  except  through  his  agent, 
to  repudiate  the  contract.  There  was  consequently  no 
evidence  of  a  delivery.     *     *     • " 

Question  105:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 

Case  No.  106.  United  Hardware  Co.  v.  Blue,  59  Florida 
419  (1910). 

Facts:  Plaintiff  sued  defendant,  K.  A.  Blue,  basing 
his  action  on  a  bill  of  hardware  sold  to  Blue,  but  which 
Blue  refuses  to  receive  and  pay  for  as  goods  purchased 
of  the  plaintiff.  Omitting  statements  of  facts  not  neces- 
sary to  recite  here,  the  order  was  not  in  writing,  but 
consisted  in  a  mere  verbal  arrangement.  The  goods 
were  afterwards  delivered  to  an  express  company,  prop- 
erly addressed  to  defendant.  Defendant  pleads  the  stat- 
ute of  frauds. 

Point  Involved:  Delivery  to  a  carrier  by  the  vendor 
of  goods  sold,  constituting  for  some  purposes,  delivery 
to  the  vendee;  does  such  delivery  to  and  the  receipt  by 
the  carrier  constitute  a  delivery  and  acceptance  within 
the  statute  of  frauds? 

Parkhill,  J. :  "  •  *  *  No  note  or  memorandum  in 
writing  of  the  bargain  or  contract  for  the  sale  of  the 
goods  in  question  was  ever  made  or  signed  by  or  for  the 
defendant,  neither  did  he  give  anything  in  earnest  to 
bind  the  bargain  or  in  part  payment.    But  it  is  contended 


166  CONTRACTS 

that  the  defendant  buyer  accepted  the  goods  so  sold  and 
actually  received  the  same,  making  the  contract  good 
under  the  statute.  Our  statute  is  like  the  Seventeenth 
Section  of  29  Charles  11,  and  in  order  to  bring  a  con- 
tract for  the  sale  of  goods  within  this  exception  it  is 
necessary  that  the  goods  should  have  been  received  and 
also  accepted  by  the  buyer.  Even  the  delivery  of  the 
goods  to  the  buyer  or  the  receipt  of  them  by  him,  with- 
out an  acceptance,  is  not  sufficient.  Hinchman  v.  Lincoln, 
124  U.  S.  38,  31  L.  3d  337,  8  Supt.  Ct.  Rep.  369.  Some 
act  or  conduct  on  the  part  of  the  buyer  or  his  authorized 
agent,  maintaining  an  intention  to  accept  the  goods  as 
a  performance  of  the  contract,  and  to  appropriate  them, 
is  required  to  supply  the  place  of  a  written  contract,  or 
payment  or  part  payment.     *     *     * 

"The  plaintiff  in  error  contends  that  *  delivery  to  the 
common  carrier  was  a  delivery  to  the  consignee.'  But 
our  statute  requires  not  only  that  the  buyer  should 
actually  receive  the  goods,  but  that  he  shall  accept  the 
same  also.  True,  the  acceptance  and  receipt  of  the  goods 
may  be  through  an  authorized  agent,  but  a  common  car- 
rier (whether  selected  by  the  seller  or  buyer)  to  whom 
the  goods  are  intrusted  without  instructions  to  do  any- 
thing but  to  carry  and  deliver  them  to  the  buyer,  as 
was  the  case  here,  is  no  more  than  an  agent  to  carry  and 
deliver  the  goods,  and  has  no  implied  authority  to  do 
the  act  required  to  constitute  an  acceptance  and  re- 
ceipt on  the  part  of  the  buyer  and  to  take  the  case  out 
of  the  statute.     *     *     •" 

Question  106:  "What  were  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case? 

Case  No.  107.    Moore  v.  Love,  57  Mississippi  765. 

Statement  of  Facts:  An  oral  sale,  of  cotton  was  al- 
leged. The  statute  of  frauds  being  pleaded,  the  ques- 
tion was  whether  there  had  been  a  sufficient  delivery  and 
acceptance  of  part  of  the  goods  to  satisfy  the  statute  and 
prevent  the  defense.     The  only  evidence  of  a  part  de- 


STATUTE  OF  FRAUDS  167 

livery  was  that  certain  samples  of  the  cotton  were  ex- 
hibited and  delivered  at  the  time  of  the  sale. 

Point  Involved:  Whether  the  delivery  and  acceptance 
of  samples  of  the  goods  sold  is  a  delivery  and  acceptance 
of  part  of  the  goods  within  the  statute  of  frauds. 

Chalmers,  J.:  "*  *  *  These  facts  do  not  meet 
the  requirements  of  a  valid  sale  under  the  statute  of 
frauds.  The  cotton  was  worth  more  than  $50.  No  part 
of  the  purchase  money  was  paid,  no  memorandum  in 
writing  was  made,  and  no  portion  of  the  goods  were  de- 
livered unless  these  samples  were.  The  delivery  and 
receipt  of  samples,  conceding  that  they  took  place,  can 
only  be  held  a  compliance  with  the  statute  of  frauds 
when  they  are  considered  and  treated  by  both  parties 
as  constituting  a  part  of  the  goods  sold,  and  as  dimin- 
ishing the  quantity  of  weight  of  such  goods  to  the  extent 
of  their  own  bulk.  *  *  *  Where  they  are  treated 
by  the  parties  as  specimens  only  of  the  goods  sold,  a 
delivery  of  them  to  the  buyer  does  not  satisfy  the  re- 
quirements of  the  statute  of  frauds.     *     *     *" 

Question  107 :  Is  the  delivery  and  acceptance  of  a  sample,  a 
delivery  and  acceptance  of  a  part  of  the  goods  sold  within  the 
statute  of  frauds? 

Sec.  74.    Compliance  by  Payment  in  Whole  or  Part  of 
Purchase  Money  in  Case  of  Sales  of  Personal  Property. 

Case  No.  108.    Wier  v.  Hudnut,  115  Indiana  525. 

Facts:  "A"  sold  "B"  5,000  bushels  of  corn,  the 
transaction  being  entirely  oral,  and  it  was  agreed  that 
B  should  furnish  sacks  to  A  for  use  in  sacking  the  corn 
in  part  payment.  These  sacks  were  delivered  by  B  to  A, 
but  when  A  had  the  corn  ready  for  delivery  B  refused 
to  take  it.  Being  sued,  he  pleaded  the  statute  of  frauds, 
but  A  contended  that  there  had  been  part  payment,  in 
the  actual  delivery  of  the  sacks,  making  the  statute  in- 
applicable. 

Point  Involved:  What  will  constitute  payment  to  sat- 
isfy the  statute  of  frauds? 


168  CONTRACTS 

Elliott,  J.:  "*  *  *  What  the  parties  agree  shall 
constitute  payment,  the  law  will  adjudge  to  be  payment. 
It  is  competent  for  parties  to  designate  by  their  contract 
how  and  in  what  payment  may  be  made.  It  is  by  no 
means  true  payment  can  only  be  made  in  money;  on 
the  contrary,  it  may  be  made  in  property  or  services. 
In  short,  whatever  the  parties  agree  shall  constitute  pay- 
ment will  be  regarded  by  the  Courts  as  payment,  pro- 
vided the  thing  agreed  upon  is  of  some  value.  *  * 
One  of  the  old  writers  says  that  'If  all  or  part  of  the 
money  is  paid  in  hand ;  or  if  I  give  earnest  money  albeit 
it  be  but  a  penny, '  the  contract  is  valid.     *     *     * ' ' 

Question  108:    State  the  above  ease. 

Case  No.  109.  Walker  v.  Nussey,  16  M.  &  W.  (Eng.) 
302. 

Parke.  B. :  "  *  *  *  The  facts  seem  to  be  these.  The 
plaintiff  owed  the  defendant  a  sum  of  4 1.  14  s.  11  d.  The 
parties  then  verbally  agreed  that  the  plaintiff  should  sell 
to  the  defendant  goods  above  101.  in  value.  *  *  * 
The  plaintiff's  debt  to  go  in  part  payment,  and  the  res- 
idue to  be  paid  by  the  defendant.  No  evidence  was 
given  of  the  actual  payment  or  discharge  of  the  debt 
due  from  the  plaintiff,  so  all  rested  in  the  agreement 
merely. ' ' 

(The  court  holds  that  a  mere  agreement  to  apply  an  indebted- 
ness in  part  payment  is  not  enough.  There  must  be  an  actual 
application  made,  as  by  a  receipt  given,  or  executed  discharge 
made,  a  striking  off  to  the  other's  credit  by  some  overt  act  in 
execution  of  the  agreement  to  do  so.  For  the  statute  requires 
actual  payment.) 

Question  109:    State  the  above  case. 

C.    The  Writing  as  the  Evidence  of  a  Written  Contract. 
(The  Parol  Evidence  Rule.) 

§  75.  The  rule  stated.  §  78.  Customs  and  usages. 

§76.  The  writing  incomplete.  §  79.  Void  and  voidable  contracts. 

§  77.  Where     contract     consists     in 
number  of  writings. 


PAROL  EVIDENCE  RULE  169 

Sec.  75.    The  Rule  Stated. 

(Editor's  Note:  When  a  contract  is  reduced  to  writing, 
whether  because  the  law  requires  it,  or  merely  because  the  par- 
ties desire  it  to  be  in  that  more  permanent  form,  the  law  con- 
siders that  it  is  in  that  writing  that  the  evidence  of  the  contract 
is  to  be  found,  and,  therefore,  will  not  permit  the  introduction 
of  oral  or  extrinsic  evidence,  whether  consisting  in  utterances 
that  are  previous  to  or  contemporaneous  with  the  writing,  to 
add  to  or  any  way  alter,  the  effect  of  such  written  agreement. 
Otherwise,  the  writing  would  be  at  most  prima  facie  evidence 
of  the  contract  and  subject  to  mutilation  by  the  testimony  of 
the  parties.  The  law,  therefore,  says  that  if  one  puts  his  con- 
tract down  in  written  form,  it  is  to  be  presumed  that  such  writ- 
ing is  his  contract,  and  that  it  was  so  intended,  and  that  there 
it  must  be  found,  and  not  elsewhere.  See  16th  Edition  of  Green- 
leaf  on  Evidence,  Sec.  275,  and  Wigmore  on  Evidence,  Chapter 
LXXXV.    See  also  the  following  cases.) 

Case  No.  110.  Seitz  v.  Brewers'  Eefrigerating  Co.,  141 
U.  S.  510. 

Facts:  The  Brewers'  Refrigerating  Machine  Co. 
sued  Seitz  on  a  written  contract  by  which  it  agreed  to 
supply  and  put  in  operation  in  defendant's  brewery, 
a  No.  2  refrigerating  machine,  of  its  own  construction, 
for  a  certain  price  to  be  paid  on  certain  terms.  Defend- 
ant defends  on  the  ground,  first,  that  there  was  an  im- 
plied warranty  that  the  machine  would  accomplish 
certain  purposes;  second,  that  there  was  a  collateral 
oral  warranty  that  the  machine  would  accomplish  those 
purposes.  The  court  decided  that  under  the  terms  of 
the  sale,  defendant  having  gotten  the  very  thing  he 
bargained  for,  there  was  no  implied  warranty  of  fitness 
for  any  particular  purpose. 

Point  Involved:  Whether  if  a  contract  of  sale  is  in 
writing  of  an  apparently  complete  form,  the  court  can 
receive  evidence  that  an  oral  warranty  was  made  as  a 
part  of  that  contract.  Specifically,  whether,  if  a  writing 
covering  a  contract  of  sale  seems  complete,  an  oral  ex- 
press warranty  contemporaneously  made  can  be  proved. 


170  CONTRACTS 

Mr.  Chief  Justice  Fuller :  "  *  *  *  The  position 
of  the  plaintiff  in  error  is,  in  the  first  place,  that  the 
evidence  on  his  behalf  tended  to  show  an  agreement  be- 
tween himself  and  defendant  in  error,  entered  into  prior 
to  or  contemporaneously  with  the  written  contract,  inde- 
pendent of  the  latter  and  collateral  to  it,  that  the  machine 
purchased  should  have  a  certain  capacity  and  should  be 
capable  of  doing  certain  work,  that  the  machine  failed 
to  come  up  to  the  requirements  of  such  independent 
parol  contract ;  that  this  evidence  was  competent ;  and 
that  the  case  should  therefore  have  been  left  to  the  jury. 

"Undoubtedly  the  existence  of  a  separate  oral  agree- 
ment as  to  any  matter  on  which  a  written  contract  is 
silent,  and  which  is  not  inconsistent  with  its  terms,  may 
be  proven  by  parol,  if  under  the  circumstances  of  the 
particular  case  it  may  properly  be  inferred  that  the 
parties  did  not  intend  the  written  paper  to  be  a  com- 
plete and  final  statement  of  the  whole  of  the  transaction 
beween  them.  But  such  an  agreement  must  not  only 
be  collateral,  but  must  relate  to  a  subject  distinct  from 
that  to  which  the  written  contract  applies;  that  is,  it 
must  not  be  so  closely  connected  with  the  principal  trans- 
action as  to  form  part  and  parcel  of  it.  And  when  the 
writing  itself  upon  its  face  is  couched-in  such  terms  as 
import  a  complete  legal  obligation  without  any  uncer- 
tainty as  to  the  object  or  extent  of  the  engagement,  it 
is  conclusively  presumed  that  the  whole  engagement  of 
the  parties,  and  the  extent  and  manner  of  their  under- 
taking, were  reduced  to  writing.    Greenl.  Ev.  275. 

"There  is  no  pretence  here  of  any  fraud,  accident  or 
mistake.  The  written  contract  was  in  all  respects  un- 
ambiguous and  definite.  The  machine  which  the  com- 
pany sold,  and  which  Seitz  bought,  was  a  No.  2  size 
refrigerating  machine,  as  constructed  by  the  company, 
and  such  was  the  machine  that  was  delivered,  put  up 
and  operated  by  the  brewery.  A  warranty  or  guaranty 
that  the  machine  should  reduce  the  temperature  of  the 
brewery  to  40  degrees  Fahrenheit,  while  in  itself  col- 
lateral to  the  sale,  which  would  be  complete  without  it, 


PAROL  EVIDENCE  RULE  171 

would  be  part  of  the  description  and  essential  to  the 
identity  of  the  thing  sold;  and  to  admit  proof  of  such 
an  engagement  by  parol  would  be  to  add  another  term  to 
the  written  contract,  contrary  to  the  settled  and  sal- 
utary rule  upon  that  subject." 

Question  110:  State  the  facts  in  the  above  case,  the  question 
presented  and  the  Court's  decision. 

Case  No.  111.  Forsyth  Manufacturing  Co.  v.  Castlen, 
112  Ga.  199. 

Facts:  Castlen  brought  suit  against  the  Forsyth  Mfg. 
Co.  on  the  following  contract:  "This  agreement  made 
and  entered  into  this  25th  day  of  April,  1898,  by  and  be- 
tween the  Forsyth  Manufacturing  Company  of  the  first 
part,  and  A.  "W.  Castlen  of  the  second  part,  both  of  the 
county  of  Monroe  and  the  state  of  Georgia,  witnesseth: 
that  the  party  of  the  first  part  hereby  agrees  to  pay  the 
party  of  the  second  part  six  cents  per  pound  for  one 
hundred  and  fifty  bales  of  lint  cotton,  to  be  delivered 
at  the  warehouse  of  the  said  Forsyth  Manufacturing 
Company,  on  the  Central  Railroad,  just  above  Forsyth,  in 
good  merchantable  order,  at  times  below  set  forth.  The 
party  of  the  second  part  hereby  agrees  to  deliver  at 
the  place  above  designated  one  hundred  and  fifty  bales 
of  lint  cotton,  said  cotton  to  be  delivered  to  the  Forsyth 
Manufacturing  Company  as  follows :  Fifty  bales  in  Sep- 
tember, fifty  bales  in  October  and  fifty  bales  in  Novem- 
ber, 1898,  at  the  place  above  set  forth,  and  in  good  mer- 
chantable order,  all  bales  to  weigh  more  than  450  pounds 
each;  and  should  the  party  of  the  second  part  fail  or 
refuse  to  furnish  the  full  amount  of  fifty  bales  each 
month,  as  above  set  forth,  then  the  second  party  for- 
feits one-half  cent  per  pound  for  each  pound  not  de- 
livered at  the  end  of  each  month  of  the  fifty  bales." 
Castlen  was  a  cotton  planter,  and  the  contract  made  was 
entered  into  upon  his  land  upon  which  cotton  was  grow- 
ing. The  plaintiff  Castlen  tendered  cotton  according  to 
his  contract,  but  it  was  refused  on  the  ground  that  it 


172  CONTRACTS 

was  not  raised  on  Castlen's  land.  The  defendant  now 
offers  to  prove  that  there  was  a  contemporaneous  oral 
agreement  that  the  cotton  should  be  raised  on  Castlen's 
land. 

Point  Involved:  That  a  contract  reduced  entirely  to 
writing  cannot  be  modified  by  parol  evidence.  Specific- 
ally, that  if  goods  are  sold  under  a  contract  completely 
reduced  to  a  writing  which  under  the  circumstances  and 
upon  the  face  of  the  contract  seems  complete,  a  collateral 
agreement  that  such  goods  shall  be  grown  by  the  seller 
cannot  be  considered.  Herein  of  the  question  when  a 
contract  is  to  be  deemed  wholly,  and  when  partially, 
reduced  to  writing. 

Cobb,  J.:  "*  *  *  When  parties  have  reduced  the 
agreement  between  them  to  writing,  they  must  abide  by 
the  terms  of  the  writing,  whatever  they  may  be,  and 
nothing  in  the  writing  can  be  contradicted  or  varied  by 
parol  evidence.  If,  however,  'a  part  of  a  contract  only 
is  reduced  to  writing  (such  as  a  note  given  in  pursuance 
of  a  contract),  and  it  is  manifest  that  the  writing  was  not 
intended  to  speak  the  whole  contract,  then  parol  evidence 
is  admissible.,  Civil  Code  No.  3675  (1).  'To  bring 
a  case  within  the  rule  admitting  parol  evidence  to  com- 
plete an  entire  agreement  of  which  a  writing  is  only  a 
part,  two  things  are  essential.  First,  the  writing  must 
appear  on  inspection  to  be  an  incomplete  contract;  and 
second,  the  parol  evidence  must  be  consistent  with  and 
not  contradictory  of  the  written  instrument. '  *  *  * 
And  a  party  is  at  liberty  'to  prove  the  existence  of  any 
separate  oral  agreement  as  to  any  matter  on  which  a 
document  is  silent,  and  which  is  not  inconsistent  with 
its  terms,  if  from  the  circumstances  of  the  case  the  court 
infers  that  the  parties  did  not  intend  the  document  to  be 
a  complete  and  final  statement  of  the  whole  of  the  trans- 
action between  them/  *  *  *  It  appears  from  the 
authorities  above  cited  that  in  order  to  render  parol  evi- 
dence admissible  for  the  purpose  of  making  complete 
an  incomplete  contract,  the  fact  that  the  contract  is  in- 


PAROL  EVIDENCE  RULE  173 

complete  must  appear  upon  the  face  of  the  contract  by 
reason  of  a  patent  ambiguity,  or,  although  apparently 
complete  on  its  face,  in  the  light  of  evidence  showing 
the  circumstances  surrounding  the  parties  at  the  time 
the  contract  was  executed,  a  latent  ambiguity  is  made 
to  appear.  *  *  *  There  are  many  decisions  by  this 
court  relating  to  this  subject,  but  it  would  be  useless  to 
refer  to  or  cite  all  of  them.  Enough  have  been  cited  to 
show  that  this  court  has  recognized  the  rule,  that  in  order 
to  allow  parol  evidence  to  be  admitted  to  show  a  collat- 
eral agreement  it  must  appear,  either  from  the  contract 
itself  or  from  the  surrounding  circumstances,  that  the 
contract  is  incomplete,  and  what  is  sought  to  be  shown 
as  a  collateral  agreement  must  not  in  any  way  conflict 
with  or  contradict  what  is  contained  in  the  writing.  An 
examination  of  the  cases  decided  by  this  court  will  show, 
we  think,  that  this  rule  has  been  steadfastly  adhered  to. 
There  may  be  some  confusion  in  regard  to  the  way  in 
which  it  has  been  applied  in  some  cases,  and  possibly 
there  have  been  erroneous  applications  of  the  rule ;  but 
no  case  has  been  called  to  our  attention  where  there 
has  been  any  departure  from  this  rule. 

"It  follows  from  what  is  above  said,  that  the  court 
did  not  err  in  refusing  to  allow  the  defendant  to  prove, 
as  a  collateral  agreement  between  himself  and  the 
plaintiff,  that  the  cotton  specified  in  the  contract  was 
to  be  raised  on  the  lands  of  the  plaintiff.  The  contract 
between  the  parties  evidenced  by  the  writing  calls  for 
a  certain  number  of  bales  of  cotton  of  a  certain  descrip- 
tion, and  for  no  particular  cotton.  It  is  clear  that,  so 
far  as  the  terms  of  the  contract  are  concerned,  the  par- 
ties did  not  intend  that  the  plaintiff  should  be  limited 
to  cotton  raised  by  him.  It  was  a  plain  and  unambiguous 
contract  for  the  delivery  of  any  cotton,  answering  to  the 
description  specified  in  the  contract,  which  the  plaintiff 
might  see  fit  to  offer  to  the  defendant  at  the  times  speci- 
fied in  the  contract.  Such  being  the  legal  effect  of  the 
paper,  parol  evidence  tending  to  show  that  the  real  con- 
tract was  that  the  cotton  was  to  be  raised  on  the  land 


174  CONTRACTS 

of  the  plaintiff  contradicted  and  varied  and  altered  the 
terms  of  the  written  instrument." 

Question  111:  (1.)  State  the  facts,  the  specific  question 
presented  and  the  Court's  decision  in  the  above  case. 

(2.)  How  is  it  to  be  determined  whether  the  contract  is  to  be 
deemed  wholly  in  writing  or  only  partially  so? 

Sec.  76.    The  Writing  Incomplete. 

(Note:  The  two  cases  above  bring  out  that  if  the  writing 
is  of  an  incomplete  nature,  the  rest  of  the  contract  is  provable, 
so  far  as  the  parol  evidence  rule  is  concerned.  The  completeness 
cannot  be  determined  from  the  fact  that  more  was  said  or  agreed 
upon  at  the  time  than  was  reduced  to  writing,  because  the  very 
statement  of  such  a  proposition  is  repugnant  to  the  theory  of 
the  rule.  The  completeness  of  the  contract  must  appear  from 
the  question  whether  (as  Professor  Wigmore  says)  there  was 
an  intention  in  integrate  the  act,  as  determined  by  the  circum- 
stances. There  may  be  an  intention  to  integrate  a  part  of  the 
act.  Thus,  in  an  executory  contract  of  sale  otherwise  oral,  a 
promissory  note  is  given.  The  transaction  as  a  whole,  consisting 
partly  in  oral  statements  and  partly  in  the  note  could  be 
proved.  But  the  note  could  not  be  altered  by  parol  evidence. 
Thus  if  the  note  provided  for  six  per  cent,  it  could  not  be  proved 
that  it  was  orally  agreed  it  should  bear  but  five,  in  the  absence 
of  mistake  or  fraud. ) 

Sec.  77.    Where  Contract  Consists  in  a  Number  of 
Writings. 

Case  No.  112.  Professor  John  H.  Wigmore,  A  Treatise 
on  the  System  of  Evidence  in  Trials  at  Common  Law, 
Section  2425. 

"When  parties  negotiate  at  a  distance  by  letters  and 
telegrams, — first  an  offer,  then  a  declination,  then  a  re- 
vision of  the  offer,  then  a  halt  upon  an  important  term, 
afterwards  an  offer  of  its  concession  in  return  for  the 
concession  of  some  prior  term  now  to  be  changed,  and 
finally  an  acceptance  of  this  concession,  and  thus  an  end 
of  the  negotiations, — where  are  the  terms  of  this  con- 


PAROL  EVIDENCE  RULE  175 

tract  to  be  found?  Obviously,  in  this  congeries  of  letters 
and  telegrams,  as  mutually  modifying  and  complement- 
ing each  other.  The  whole  of  the  contract  is  not  in  any 
one  document.  Nor,  on  the  other  hand,  does  the  whole  of 
any  one  document  (probably)  represent  a  part  of  the 
contract,  because  some  of  its  terms  have  been  impaired 
and  replaced  by  other  documents  in  the  series.  Nor  can 
it  be  said  that  there  is  a  series  of  legal  acts,  each  one  in- 
dependent, successively  modifying  the  preceding  ones; 
for  each  letter  and  telegram  is  merely  tentative  and  prep- 
aratory, and  there  exists  no  legal  act  (ante  2401,  2404) 
until  the  final  assent  is  given.  That  assent,  when  it  comes, 
adopts  and  vivifies  the  entire  mass,  which  until  then  was 
legally  inchoate  only.  The  process  was  not  unlike  the 
fall  of  cards  in  the  play  of  a  trick  at  whist ;  the  total  ef- 
fect cannot  be  determined  till  the  last  card  has  fallen, 
and  no  once  card  exhibits  in  itself  the  effect  of  the  trick ; 
yet,  when  all  are  played,  the  second  card  may  prove  to 
be  the  decisive  factor  and  may  remain  unimpaired  by 
any  later  play. 

1 '  On  the  other  hand,  if  instead  of  leaving  the  net  effect 
of  the  negotiations  to  be  gleaned  from  the  mass  of  writ- 
ings, a  single  document  is  finally  drawn  up  to  replace 
them  and  to  embody  their  net  effect,  and  is  signed  or 
otherwise  adopted  by  the  parties,  this  document  will  now 
alone  represent  the  terms  of  the  act.  Instead  of  leaving 
the  wheat  mingled  with  the  chaff,  the  wheat  has  been 
definitely  selected  and  set  apart  in  a  single  mass.  The 
wheat  existed  there,  no  less  before  than  now,  but  it  has 
now  been  placed  in  a  single  receptacle  by  itself. 

"The  process  of  embodying  the  terms  of  a  legal  act 
in  a  single  memorial  may  be  termed  the  integration  of 
the  act,  i.  e.,  its  formation  from  scattered  parts  into  an 
integral  documentary  unity.  The  practical  consequence 
of  this  is  that  its  scattered  parts,  in  their  former  and 
inchoate  shape,  have  no  longer  any  legal  effect ;  they  are 
replaced  by  a  single  embodiment  of  the  act.  In  other 
words:  When  a  legal  act  is  reduced  into  a  single  me- 
morial, all  other  utterances  of  the  parties  on  that  topic 


!76  CONTRACTS 

are  legally  immaterial  for  the  purpose  of  determining 
what  are  the  terms  of  their  act." 

Question  112:  Explain  how  a  contract  may  consist  in  a  num- 
ber of  writings,  and  how  a  final  document  may  take  the  place  of 
all  of  them. 

Sec.  78.    Customs  and  Usages. 

Case  No.  113.    Walls  v.  Bailey,  49  N.  Y.  464. 

Facts :  Suit  brought  to  recover  a  balance  alleged  to  be 
due  to  plaintiffs  for  plastering  defendant's  house.  The 
work  was  done  under  a  written  contract  quoting  prices 
at  so  much  "per  square  yard."  Plaintiffs  did  the  work 
and  charged  defendant  for  the  work  done  without  de- 
ducting for  cornices,  base  boards,  doors  or  windows, 
claiming  that  it  was  a  general  custom  not  to  deduct  such 
spaces  in  determining  the  amount  of  space  covered. 

Point  Involved:  Whether  a  general  custom  known  or 
which  by  reason  of  its  general  acceptance  must  be  taken 
to  have  been  known  by  both  parties,  enters  into  a  written 
contract  made  by  them  which  contains  nothing  inconsist- 
ent with  such  custom. 

Folger,  J.:  "The  contract  between  the  parties  was  in 
writing.  By  it  the  plaintiffs  were  to  furnish,  the  mate- 
rial for  the  plastering  work  of  the  defendant's  house, 
and  to  do  the  work  of  laying  it  on.  The  defendant  was 
to  pay  them  for  the  work  and  material  a  price  per  square 
yard.  Of  course,  the  total  of  the  compensation  was  to  be 
got  by  measurement.  But  when  the  parties  came  to  de- 
termine how  many  square  yards  there  were,  they  dif- 
fered. The  query  was,  the  square  yards  of  what?  Of 
the  plaster  actually  laid  on,  or  of  the  whole  side  of  the 
house  calling  it  solid,  with  no  allowance  for  the  openings 
by  windows  and  doors  ? 

"And  it  is  not  to  be  said  of  this  contract,  that  it  was 
so  plain  in  its  terms  as  that  there  could  be  but  one  con- 
clusion as  to  the  mode  of  measurement,  by  which  the  num- 


PAROL  EVIDENCE  RULE  177 

ber  of  square  yards  of  work  should  be  arrived  at.  It  is 
in  this  case  as  it  was  in  Hinton  v.  Locke  (5  Hill,  437). 
There  the  work  was  done  at  so  much  per  day.  The  par- 
ties there  differed  as  to  how  many  hours  made  a  day's 
work.  That  is,  what  should  be  the  measurement  of  the 
day?  And  there,  evidence  of  the  usage  was  admitted, 
not  to  control  any  rule  of  law,  nor  contradict  the  agree- 
ment of  the  parties,  but  to  explain  an  ambiguity  in  the 
contract?  And  the  proof  showing  a  usage  among  car- 
penters that  the  day  was  to  be  measured  by  the  lapse 
of  ten  hours,  it  was  held  a  valid  usage ;  and  the  contract 

was  interpreted  in  accordance  with  it. 

a  *     *     * 

"So  in  the  case  before  us.  How  shall  the  number  of 
the  square  yards  of  work  done  be  ascertained,  is  not  so 
determinately  reached  by  the  language  of  the  contract 
as  that  the  law  can  say  there  was  but  one  method  in  the 
minds  of  the  parties,  and  this  is  it. 

"And  from  the  cases  above  cited,  it  appears  that  the 
meaning  of  words  may  be  controlled  and  varied  by 
usage;  even  when  they  are  words  of  number,  length  or 
space,  usually  the  most  definite  in  language. 

"Every  legal  contract  is  to  be  interpreted  in  accord- 
ance with  the  intention  of  the  parties  making  it.  And 
usage  (with  a  limitation  hereafter  noticed),  when  it  is 
reasonable,  uniform,  well  settled,  not  in  opposition  to 
fixed  rules  of  law,  not  in  contradiction  of  the  express 
terms  of  the  contract,  is  deemed  to  form  a  part  of  the 

contract,  and  to  enter  into  the  intention  of  the  parties. 

#     *     # 

1 '  The  jury  in  the  case  before  us,  have  found  the  exist- 
ence of  the  usage  contended  for  by  the  plaintiffs,  and 
upon  evidence  which  well  sustains  the  finding.  The  same 
evidence  shows  that  the  usage  was  uniform,  continuous 
and  well  settled.  Nor  was  it  one  which  was  in  opposition 
to  well  settled  principles  of  law,  or  which  was  unrea- 
sonable.    *     *     * 

"It  would  seem,  however,  that  upon  principle,  for  a 
party  to  be  bound  by  a  local  usage,  or  a  usage  of  a  par- 


178  CONTRACTS 

ticular  trade  or  profession,  he  must  be  shown  to  have 
knowledge  or  notice  of  its  existence.  (Id.)  For  upon 
what  basis  is  it  that  a  contract  is  held  to  be  entered  into 
with  reference  to,  or  in  conformity  with,  an  existing 
usage?  Usage  is  engrafted  upon  a  contract  or  invoked 
to  give  it  a  meaning,  on  the  assumption  that  the  parties 
contracted  in  reference  to  it;  that  is  to  say,  that  it  was 
their  intention  that  it  should  be  part  of  their  contract 
wherever  their  contract  in  that  regard  was  silent  or  ob- 
scure. But  could  intention  run  in  that  way  unless  there 
was  knowledge  of  the  way  to  guide  it?  No  usage  is  ad- 
missible to  influence  the  construction  of  a  contract  un- 
less it  appears  that  it  be  so  well  settled,  so  uniformly 
acted  upon,  and  so  long  continued,  as  to  raise  a  fair  pre- 
sumption that  it  was  known  to  both  contracting  parties, 
and  that  they  contracted  in  reference  thereto.  ( See  Rush- 
forth  v.  Hadfield,  7  East,  224) .  There  must  be  some  proof 
that  the  contract  had  reference  to  it,  or  proof  arising  out 
of  the  position  of  the  parties,  their  knowledge  of  the 
course  of  business,  their  knowledge  of  the  usage,  or  other 
circumstances  from  which  it  may  be  inferred  or  pre- 
sumed that  they  had  reference  to  it.  (Bodfish  v.  Fox, 
supra,  p.  96). " 

Question  113:  On  what  theory  is  a  custom  or  usage  consid- 
ered a  part  of  a  written  contract  ?  In  your  opinion  does  it  alter 
the  terms  of  a  written  agreement?  What  must  be  true  of  the 
custom  in  order  that  it  should  control? 

Sec.  79.   Void  and  Voidable  Contracts  as  Affected  by  the 

Rule. 

Case  No.  114.  Muskogee  Land  Co.  v.  Mullins,  165  Fed. 
179. 

'Facts:  This  was  a  suit  brought  by  the  Muskogee  Land 
Co.  against  Mullins  for  rent  alleged  to  be  due  on  certain 
premises  under  the  terms  of  a  written  lease,  purporting 
to  let  the  land  for  agricultural  purposes.  Defense  that  it 
was  the  intent  of  the  parties  that  the  land  should  be  used 
for  other  and  illegal  purposes. 


ORAL  CONTRACTS  179 

Point  Involved:  Whether  a  contract  legal  on  its  face 
and  expressed  to  be  for  a  legal  purpose,  may,  as  a  matter 
of  fact  be  shown  to  have  been  entered  into  for  an  illegal 
purpose. 

Adams,  Circuit  Judge  :  ' '  *  *  *  The  land  company- 
contends  that  the  face  of  the  lease  expressed  the  truth, 
and  that  the  real  purpose  of  the  parties  was  to  create  in 
the  lessee  a  lawful  term  of  two  years  for  agricultural 
purposes  only. 

"On  this  controlling  issue  of  fact  the  writing  is  not 
conclusive.  Parol  evidence  is  always  competent  to  show 
that  a  written  contract,  fair  and  lawful  on  its  face,  is  in 
truth,  contrary  to  law,  morals  or  public  policy.     *     *     •  " 

Question  114:     State  the  above  case. 

D.    Oral  and  Implied  Contracts. 

§  80.  Validity  of  oral  contracts.  §81.  Implied  contracts.  *"~ 

Sec.  80.    Validity  of  Oral  Contracts. 

Case  No.  115.    McKennon  v.  Winn,  1  Okla.  327. 

Burford,  J. :  "*  *  *  (Quoting  from  Bishop  on 
Contracts,  Sec.  153.)  'Every  contract  on  whatever  sub- 
ject may  be  in  oral  words  which  will  have  the  same  effect 
as  if  written  except  when  some  positive  rule  of  the  com- 
mon or  statutory  law  has  provided  otherwise.'  " 

Question  One  Hundred  and  Fifteen:  May  a  contract  be 
orally  made  ?  What  is  the  rule  as  to  when  it  need  not  be  in  writ- 
ing? 

(Note:  Contracts  may  be  put  in  writing  because  the  law  for 
different  purposes  so  requires  it,  or  because  the  parties  desire 
the  more  permanent  and  certain  evidence  of  the  writing.  But 
except  the  law  so  requires,  any  contract  may  be  oral.  The  va- 
lidity of  a  contract  and  the  evidence  to  prove  it  are  different 


180  CONTRACTS 

thiDgs.     It  is  the  general  rule  that  any  contract  may  be  oral. 
The  law  has  made  many  exceptions  to  this  general  rule.) 

Sec.  81.    Implied  Contracts. 

Case  No.  116.    Hertzog  v.  Hertzog,  29  Pa.  St.  465. 

Facts:  Suit  brought  by  John  Hertzog  to  recover  from 
the  estate  of  his  father  compensation  for  services  ren- 
dered the  latter  in  his  life  time.  Plaintiff  became  21  in 
1825,  but  continued  to  reside  with  his  father,  who  was  a 
farmer,  and  to  labour  for  him,  until  1842.  No  express 
contract  to  pay  him  anything  was  proved. 

Point  Involved:  Generally,  of  the  definition  and  nature 
of  implied  contracts  and  the  evidence  to  prove  them. 
Specifically,  whether,  a  son  who  resides  at  the  home  of 
his  father  and  works  for  him,  having  no  express  contract 
with  the  father,  can,  after  the  work  has  been  done,  claim 
an  implied  promise  to  compensate  him  for  such  services. 

Lowrie,  J. :  "  'Express  contracts  are,  where  the  terms 
of  the  agreement  are  openly  uttered  and  avowed  at  the 
time  of  the  making;  as,  to  deliver  an  ox  or  ten  loads  of 
timber,  or  to  pay  a  stated  price  for  certain  goods.  Im- 
plied are  such  as  reason  and  justice  dictate;  and  which, 
therefore,  the  law  presumes  that  every  man  undertakes 
to  perform.  As,  if  I  employ  a  person  to  do  any  business 
for  me,  or  perform  any  work,  the  law  implies  that  I 
undertook  and  contracted  to  pay  him  as  much  as  his 
labour  deserves.  If  I  take  up  wares  of  a  tradesman 
without  any  agreement  of  price,  the  law  concludes  that 
I  contracted  to  pay  their  real  value. ' 

"This  is  the  language  of  Blackstone,  2  Comm.  443,  and 
it  is  open  to  some  criticism.  There  is  some  looseness  of 
thought  in  supposing  that  reason  and  justice  ever  dic- 
tate any  contracts  between  parties,  or  impose  such  upon 
them.  All  true  contracts  grow  out  of  the  intentions  of 
the  parties  to  transactions,  and  are  dictated  only  by  their 
mutual  and  accordant  wills.  When  this  intention  is  ex- 
pressed, we  call  the  contract  an  express  one.    When  it 


IMPLIED  CONTRACTS  181 

is  not  expressed,  it  may  be  inferred,  implied,  or  presumed 
from  circumstances  as  really  existing,  and  then  the  con- 
tract, thus  ascertained,  is  called  an  implied  one.  The 
instances  given  by  Blackstone  are  an  illustration  of  this. 

"But  it  appears  in  another  place,  3  Comm.  159-166, 
that  Blackstone  introduces  this  thought  about  reason  and 
justice  dictating  contracts,  in  order  to  embrace,  under  his 
definition  of  an  implied  contract,  another  large  class  of 
relations,  which  involve  no  intention  to  contract  at  all, 
though  they  may  be  treated  as  if  they  did.  Thus,  when- 
ever, not  our  variant  notions  of  reason  and  justice,  but 
the  common  sense  and  common  justice  of  the  country, 
and  therefore  the  common  law  or  statute  law,  impose 
upon  any  one  a  duty,  irrespective  of  contract,  and  allow 
it  to  be  enforced  by  a  contract  remedy,  he  calls  this  a 
case  of  implied  contract.  Thus  out  of  torts  grows  the 
duty  of  compensation,  and  in  many  cases  the  tort  may 
be  waived,  and  the  action  brought  in  assumpsit. 

"It  is  quite  apparent,  therefore,  that  radically  differ- 
ent relations  are  classified  under  the  same  term,  and 
this  must  often  give  rise  to  indistinctness  of  thought. 
And  this  was  not  at  all  necessary;  for  we  have  another 
well  authorized  technical  term  exactly  adapted  to  the 
office  of  making  the  true  distinction.  The  latter  class 
are  merely  constructive  contracts,  while  the  former  are 
truly  implied  ones.  In  one  case  the  contract  is  mere  fic- 
tion, a  form  imposed  in  order  to  adapt  the  case  to  a  given 
remedy ;  in  the  other  it  is  a  fact  legitimately  inferred.  In 
one,  the  intention  is  disregarded;  in  the  other,  it  is  as- 
certained and  enforced.  In  one,  the  duty  defines  the  con- 
tract; in  the  other,  the  contract  defines  the  duty. 

"We  have,  therefore,  in  law  three  classes  of  relations 
called  contracts. 

"1.  Constructive  contracts,  which  are  fictions  of  law 
adapted  to  enforce  legal  duties  by  actions  of  contract, 
where  no  proper  contract  exists,  express  or  implied. 

"2.  Implied  contracts,  which  arise  under  circum- 
stances which,  according  to  the  ordinary  course  of  deal- 
ing and  the  common  understanding  of  men,  show  a 
mutual  intention  to  contract. 


182  CONTRACTS 

"3.  Express  contracts,  already  sufficiently  distin- 
guished. 

In  the  present  case  there  is  no  pretense  of  a  construc- 
tive contract,  but  only  of  a  proper  one,  either  express  or 
implied.  And  it  is  scarcely  insisted  that  the  law  would 
imply  one  in  such  a  case  as  this ;  yet  we  may  present  the 
principle  of  the  case  the  more  clearly,  by  showing  why  it 
it  not  one  of  implied  contract. 

"The  law  ordinarily  presumes  or  implies  a  contract 
whenever  this  is  necessary  to  account  for  other  relations 
found  to  have  existed  between  the  parties. 

* '  Thus  if  a  man  is  found  to  have  done  work  for  another, 
and  there  appears  no  known  relation  between  them  that 
accounts  for  such  service,  the  law  presumes  a  contract 
of  hiring.  But  if  a  man's  house  takes  fire,  the  law  does 
not  presume  or  imply  a  contract  to  pay  his  neighbors  for 
their  service  in  saving  his  property.  The  common  prin- 
ciples of  human  conduct  mark  self-interest  as  the  mo- 
tive of  action  in  the  one  case,  and  kindness  in  the  other ; 
and  therefore,  by  common  custom,  compensation  is  mu- 
tually counted  on  in  the  one  case,  and  in  the  other  not. 

"•  *  *  A  party  who  relies  upon  a  contract  must 
prove  its  existence;  and  this  he  does  not  do  by  merely 
proving  a  set  of  circumstances  that  can  be  accounted  for 
by   another  relation   appearing   to   exist  between   the 

parties. 

<«  #     •      • 

"Every  induction,  inference,  implication,  or  presump- 
tion in  reasoning  of  any  kind,  is  a  logical  conclusion  de- 
rived from,  and  demanded  by,  certain  data  or  ascertained 
circumstances.  If  such  circumstances  demand  the  conclu- 
sion of  a  contract  to  account  for  them,  a  contract  is 
proved;  if  not,  not.  If  we  find,  as  ascertained  circum- 
stances, that  a  stranger  has  been  in  the  employment  of 
another,  we  immediately  infer  a  contract  of  hiring,  be- 
cause the  principles  of  individuality  and  self-interest, 
common  to  human  nature,  and  therefore  the  customs  of 
society,  require  this  inference. 

"But  if  we  find  a  son  in  the  employment  of  his  father, 


IMPLIED  CONTRACTS  183 

we  do  not  infer  a  contract  of  hiring,  because  the  princi- 
ple of  family  affection  is  sufficient  to  account  for  the  fam- 
ily association,  and  does  not  demand  the  inference  of  a 
contract.  And  besides  this,  the  position  of  a  son  in  a 
family  is  always  esteemed  better  than  that  of  a  hired  serv- 
ant, and  it  is  very  rare  for  sons  remaining  in  their  fa- 
ther's family  even  after  they  arrive  at  age,  to  become 
mere  hired  servants.  If  they  do  not  go  to  work  or  busi- 
ness on  their  own  account,  it  is  generally  because  they 
perceive  no  sufficient  inducement  to  sever  the  family  bond, 
and  very  often  because  they  lack  the  energy  and  in- 
dependence necessary  for  such  a  course ;  and  they  leave 
very  seldomly  because  their  father  desires  to  use  them  as 
hired  servants.  Customarily  no  charges  are  made  for 
boarding  and  clothing  and  pocket-money  on  one  side,  or 
for  work  on  the  other ;  but  all  is  placed  to  the  account  of 
filial  and  parental  duty  and  relationship. 

1 '  Judging  from  the  somewhat  discordant  testimony  in 
the  present  case,  this  son  remained  injthe  employment  of 
his  father  until  he  was  about  forty  years  old ;  for  we  take 
no  account  of  his  temporary  absence.  While  living  with 
his  father,  in  1842,  he  got  married,  and  brought  his  wife 
to  live  with  him  in  the  house  of  his  parents.  Afterwards 
his  father  placed  him  on  another  farm  of  the  father,  and 
very  soon  followed  him  there,  and  they  all  lived  together 
until  the  father's  death  in  1849.  The  farm  was  the  fa- 
ther's and  it  was  managed  by  him  and  in  his  name,  and 
the  son  worked  on  it  under  him.  No  accounts  were  kept 
between  them,  and  the  presumption  is  that  the  son  and 
his  family  obtained  their  entire  living  from  the  father 
while  they  were  residing  with  him. 

"Does  the  law,  under  the  circumstances,  presume  that 
the  parties  mutually  intended  to  be  bound,  as  by  contract, 
for  the  service  and  compensation  of  the  son  and  his  wife  f 
It  is  not  pretended  that  it  does.  But  it  is  insisted  that 
there  are  other  circumstances  besides  these  which,  taken 
together,  are  evidence  of  an  express  contract  for  com- 
pensation in  some  form,  and  we  are  to  examine  this. 

1  'In  this  court  it  is  insisted  that  the  contract  was  that 


184  CONTRACTS 

the  farm  should  be  worked  for  the  joint  benefit  of  the 
father  and  son,  and  that  the  profits  were  to  be  divided ; 
but  there  is  not  a  shadow  of  evidence  of  this.  And  more- 
over it  is  quite  apparent  that  it  was  wages  only  that  was 
claimed  before  the  jury  for  the  services  of  the  son  and 
his  wife,  and  all  the  evidence  and  the  charge  point  only 
in  that  direction.  There  was  no  kind  of  evidence  of  the 
annual  products. 

"Have  we  then  any  evidence  of  an  express  contract  of 
the  father  to  pay  his  son  for  his  work  or  that  of  his  wife? 
"We  concede  that,  in  a  case  of  this  kind,  an  express  con- 
tract may  be  proved  by  indirect  or  circumstantial  evi- 
dence. If  the  parties  kept  accounts  between  them,  these 
might  show  it.  Or  it  might  be  sufficient  to  show  that 
money  was  periodically  paid  to  the  son  as  wages ;  or,  if 
there  be  no  creditors  to  object,  that  a  settlement  for 
wages  was  had,  and  a  balance  agreed  upon.  But  there  is 
nothing  of  the  sort  here.,, 

Question  116:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  Why  is  it  erroneous  to  say  that  justice  and  reason  cre- 
ates contractual  relationships  between  the  parties? 

(3.)  On  what  reasoning  is  the  inference  raised  that  there  is 
or  is  not  a  contract  between  parties  in  a  given  situation  (there 
being  no  evidence  of  express  contract  between  them)  ? 

(4.)  If  the  father  and  son  in  this  case  had  had  an  express 
contract,  what  sort  of  evidence  could  have  been  introduced  to 
prove  it? 


PART  II 

THE  INTERPRETATION  OF  CONTRACTS 

Chapter  Seven.     General  rules  of  interpretation. 
Chapter  Eight.     Interpretation  with  respect  to  time  of 

performance. 
Chapter  Nine.       Interpretation  of  provisions  as  to  dam- 
ages or  penalties  in  event  of  breach. 

CHAPTER    SEVEN      I 
GENERAL  RULES  OF  INTERPRETATION 

§  82.  Object     of     interpretation    to       §  85.  Customs  and  usages   as   gov- 
discover  intent.  erning    meaning    of    words 

§  83.  Intent  to  be  derived  from  Ian-  used, 

guage  and  conduct. 

§  84.  Words    used    in    technical    or 
other  special  sense. 

Sec.  82.    Object  of  Interpretation  to  Discover  Intent. 

(Note :  No  eases  seem  advisable  here.  It  is  sufficient  to  state 
that  the  object  of  the  interpretation  of  a  contract  is  to  arrive 
at  the  intention  of  the  parties.  The  reason  for  this  is  obvious. 
A  contract  obligation  is  one  that  the  parties  have  voluntarily- 
assumed.  It  is  the  court's  province  to  find  out  what  the  obliga- 
tion was  that  the  parties  intended  to  be  created.  Any  other  rule 
would  make  a  contract  for  the  parties. 

It  may  be  added,  here,  that  the  courts  often  say  that  if  the 
language  is  plain  and  unequivocal  there  is  nothing  to  construe. 
All  rules  of  construction  are  for  application  to  contracts  6f  an 
ambiguous  character.) 

185 


186  CONTRACTS 

Sec.  83.    Intent  to  Be  Derived  from  Language  and 
Conduct. 

(Note :  While  the  actual  intent  of  the  parties  is  to  be  sought, 
we  are  confronted  with  the  limitation  that  we  can  only  know 
the  intent  by  the  outward  expression  thereof.  A  party  may 
actually  mean  one  thing  and  say  another.  What  he  says,  or  in 
case  of  implied  contracts  or  parts  of  contracts,  what  he  does 
determines  what  he  intends.  To  allow  him  to  assert,  afterwards, 
that  his  intention  was  otherwise  would  operate  to  the  great  in- 
justice of  the  other  party.) 

Sec.  84.    Words  Used  in  a  Technical  or  Other  Special 

Sense. 

(Note:  If  it  is  apparent  that  the  parties  use  words  in  a 
technical  or  in  any  special  sense,  the  court  will  define  the  words 
by  such  technical  or  special  meaning.  It  must  appear  that  both 
parties  from  their  situation  so  understood  the  words. ) 

Sec.  85.    Customs  and  Usages  as  Governing  Meaning  of 
Terms  Employed. 

Case  No.  117.    Souter  v.  Kellerman,  18  Mo.  509. 

Facts:  S.  bought  of  K.  packs  of  " 4,000  shingles," 
and  K.  delivered  packs  containing  2,500  shingles.  This 
suit  was  brought  for  the  value  of  the  alleged  deficiency. 
K.  defended  that  by  a  custom  of  the  lumber  trade,  2 
packs  of  a  certain  size  are  regarded  as  1,000  shingles  and 
are  always  so  bought  and  sold,  without  counting  the 
number. 

Point  Involved:  Whether  if  there  is  a  general  and 
well  established  usage  in  a  trade  or  market,  a  contract 
will  be  governed  thereby. 

Gamble,  J.:  "*  *  *  The  usage  of  a  particular 
trade  is  evidence  from  which  the  intention  and  agree- 
ment of  the  parties  may  be  implied;  and  although  it 
cannot  control  an  express  contract,  made  in  such  terms 
as  to  be  entirely  inconsistent  with  it,  yet,  in  express 


RULES  OF  INSTRUCTION  187 

contracts,  the  terms  employed  may  have  their  true  mean- 
ing and  force  best  understood  by  reference  to  such 
usage.  *  *  *  The  usage  must  appear  to  be  so  gen- 
eral and  well  established  that  knowledge  of  it  may  be 
presumed  to  exist  among  those  dealing  in  the  business 
to  which  it  applies,  so  that  the  contract  of  the  parties 
may  be  taken  to  have  been  with  reference  to  it.  In.  this 
country  many  articles  in  terms  sold  by  the  bushel 
*  *  *  are  in  fact  sold  by  weight;  *  *  *  when 
such  custom  becomes  general  and  well  established,  so  as 
to  be  known  to  the  community,  it  is  obvious  that  a  con- 
tract for  a  given  number  of  bushels  must  mean  the 
bushel  as  ascertained  by  weight.     *     *     *" 

Question  117:  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  the  above  case? 

(2.)  What  must  characterize  the  custom  in  order  that  it  may 
control  ? 

(3.)  How  may  the  operation  of  such  customs  be  prevented  in 
any  particular  contract? 


CHAPTER    EIGHT 

INTERPRETATION  WITH  RESPECT  TO  TIME  OF 
PERFORMANCE 

§  86.  In  a  court  of  law.  §  87.  In  a  court  of  equity. 

Sec.  86.    In  a  Court  of  Law  Time  the  Essence  of 
Contracts. 

Case  No.  118.  Cleveland  Rolling  Mill  v.  Rhodes,  121 
U.  S.  255. 

Facts:  The  C.  R.  M.  agreed  to  sell  to  Rhodes,  a  mer- 
chant at  Chicago,  the  entire  product  of  14,000  tons  of  iron 
ore  to  be  shipped  as  rapidly  as  possible  during  the  sea- 
son of  navigation,  in  1880,  or  such  part  as  remained  to 
be  shipped  on  the  opening  of  navigation  in  1881.  The 
C.  R.  M.  shipped  about  8,421  tons  in  1880  and  had  on 
hand  for  shipment  in  1881  at  the  opening  of  navigation 
3,506  tons.  It  was  not  ready  to  fulfill  its  contract  until 
nearly  two  months  after  the  season  opened  in  1881. 
Rhodes  refused  to  receive  the  shipments  made  in  1881. 

Point  Involved:  Whether  a  provision  in  a  contract 
as  to  the  time  for  performance  is  to  be  construed  lit- 
erally, so  that  an  unreadiness  to  perform  at  the  very 
time,  will  (unless  waived  by  the  other  side)  constitute 
a  breach. 

Mr.  Justice  Gray:  "In  a  case  decided  upon  much 
consideration  at  the  last  term,  the  general  rule  was 
stated  as  follows:    In  the  contracts  of  merchants  time 

188 


TIME  OF  PERFORMANCE  189 

is  of  the  essence.  The  time  of  shipment  is  the  usual  and 
convenient  means  of  fixing  the  probable  time  of  arrival 
with  a  view  to  providing  funds  to  pay  for  the  goods,  or 
of  fulfilling  contracts  with  third  persons.     *     *     * 

"When  a  merchant  agrees  to  sell  and  to  ship  to  the 
rolling  mill  of  the  buyer  a  certain  number  of  tons  of 
pig  iron  at  a  certain  time,  both  the  amount  of  iron  and 
the  time  of  shipment  are  essential  terms  of  the  agree- 
ment, the  seller  does  not  perform  his  agreement  by  ship- 
ping part  of  the  amount  at  the  time  appointed  and  the 
rest  from  time  to  time  afterwards,  and  the  buyer  is  not 
bound  to  accept  any  part  of  the  iron  so  shipped.  *  *  * 
The  necessary  conclusion  is  that  the  defendant  was 
justified  in  refusing  to  accept  any  of  the  iron  shipped 
in  1881." 

Question  118:  What  do  we  mean  by 'saying  "time  is  of  the 
essence"  of  a  contract?  What  practical  result  follows  the  ap- 
plication of  the  doctrine? 

Sec.  87.    In  a  Court  of  Equity  Time  May  or  May  Not  Be 
of  the  Essence. 

Case  No.  119.    Smith  v.  Brown,  10  111.  309. 

Tkeat,  C.  J. :  "*  *  *  The  general  rule  in  equity 
is,  that  time  is  not  necessarily  deemed  of  the  essence  of 
the  contract,  unless  the  parties  have  expressly  so  re- 
garded it,  or  it  necessarily  results  from  the  nature  and 
circumstances  of  the  contract.  The  parties  may  make 
time  of  the  essence  of  their  agreement,  and  when  this 
clearly  appears  to  have  been  their  intention,  and  no 
peculiar  circumstance  has  intervened  to  prevent  or  ex- 
cuse a  strict  performance,  it  must  be  so  considered  and 
treated  in  equity.  The  right  to  make  such  agreements 
cannot  be  denied,  and  it  is  the  duty  of  the  courts  to  en- 
force them,  as  made,  and  not  to  make  new  contracts  for 
the  parties.     The   real  intention  of  the  parties  must 


190  CONTRACTS 

govern,  and  that  is  to  be  determined  from  the  contract 
and  surrounding  circumstances. ' ' 

Question  119:    When  will  a  court  of  equity  deem  time  as  of 
the  essence! 


CHAPTER    NINE 

INTERPRETATION  OF  PROVISIONS  AS  TO 

DAMAGES  OR  PENALTIES  IN  EVENT 

OF  BREACH 

§  88.  Introductory.  §  91.  Same  sum  payable  in  event  of 

§  89.  Damages     difficult     of     ascer-  breach    of    any    of    Several 

tainment   and   sum   reason-  covenants    of    varying    im- 

able.  portance. 

§  90.  Larger  sum  than  debt  payable 

on    default   of   payment   of 

debt. 

Sec.  88.    Introductory. 

(Note :  A  word  of  explanation  seems  necessary  as  an 
introduction  to  this  somewhat  confusing  subject.  We 
are  to  consider  whether  a  sum  which  is  named  in  a  con- 
tract as  payable  in  the  event  of  non-performance,  is 
named  as  "liquidated  damages"  or  as  a  "penalty." 
What  do  these  terms  mean  ?  For  instance,  suppose  that 
A  contracts  with  B  that  B  shall  work  for  him  for  one 
certain  week  for  a  compensation  of  twenty-five  dollars, 
and  in  the  event  of  his  failure  to  carry  out  the  contract, 
that  he  shall  pay  A,  $100.  B  defaults.  Can  A  recover 
the  $100?  We  will  find  that  if  the  courts  would  say  that 
A  could  recover,  they  would  call  the  $100  "liquidated 
damages,"  but  if  they  would  decide  he  could  not  recover 
the  $100,  but  must  prove  his  actual  damages  they  would 
call  the  $100  a  "penalty."  Now  we  may  notice,  first, 
that  the  $100  may  or  may  not  have  any  reference  to 
A's  actual  damages,  according  to  circumstances,  and  that 

191 


192  CONTRACTS 

A's  damages  may  or  may  not  be  readily  ascertainable 
according  to  circumstances. 

What  is  the  purpose  of  the  law  in  awarding  damages  ? 
It  is  to  put  the  injured  party  as  near  as  may  be  in  the 
position  in  which  he  would  have  been  had  the  other  party 
carried  out  his  contract.  Ordinarily  there  is  no  provi- 
sion in  the  contract  as  to  the  measure  of  damages  and 
the  court  would  apply  the  rules  of  law  established  to 
the  end  of  giving  the  injured  party  the  damages  he  has 
actually  sustained.  Suppose,  however,  the  parties  do 
mention  a  sum  as  payable  in  the  event  of  breach.  The 
enforcement  of  that  sum  may  give  damages  that  are  out 
of  all  proportion  to  the  damages  actually  sustained. 
On  the  other  hand,  it  may  be  a  reasonable  agreement 
entered  into  by  the  parties  for  the  purpose  of  obviating 
the  necessity  of  proving  damages  which  may  be  very 
difficult  if  not  impossible  of  ascertainment.  Where  such 
a  provision  is  made,  the  law  favors  its  construction  as 
a  penalty,  that  is,  not  enforceable  as  damages,  but  it  also 
recognizes  that  the  provision  is  a  wise  one  and  enforce- 
able, where  the  nature  of  the  contract  makes  the  proof 
of  damages  difficult  and  the  sum  named  is  reasonable, 
that  is,  appears  to  have  been  put  in,  not  arbitrarily,  but 
with  some  reference  to  the  damages  that  would  be  act- 
ually suffered. 

At  common  law  a  provision  as  to  an  amount  payable 
in  a  bond  or  other  contract  was  enforceable  without 
respect  to  the  damages  actually  sustained.  In  the  case 
of  bonds,  courts  of  equity  established  a  jurisdiction  to 
relieve  against  the  penalty  thereof,  and  to  inquire  into 
the  damages,  by  providing  that  the  amount  of  the  penalty 
of  the  bond  should  stand  as  security,  but  that  execution 
should  not  issue  except  for  the  damages  caused  by  breach 
By  an  English  statute  (8  and  9  Wm.  III.)  the  law  courts 
were  directed  to  follow  the  rule  of  the  equity  courts,  and 
today  the  penalty  of  the  bond  is  never  considered  as 
recoverable  except  in  so  far  as  it  represents  actual 
damages. 

Now  it  is  apparent  that  even  in  the  extreme  case  of 


LIQUIDATED  DAMAGES  AND  PENALTIES        193 

a  penal  bond,  the  law  conrt  regarded  the  provision  as 
to  the  penalty  as  expressing  the  intention  of  the  parties 
that  such  sum  was  to  be  recoverable,  and  allowed  such 
sum  to  be  recovered,  yet  that  sum  is  not  now  recoverable, 
and  today,  knowing,  as  we  do,  the  legal  effect  of  a  penal 
bond,  the  obligor  never  intends  to  pay  nor  the  obligee  to 
receive  the  penalty  named.  It  provides  merely  a  means 
of  security. 

In  other  contracts  the  difficulties  appear.  Shall  a  sum 
that  is  stated  as  payable  if  the  contract  is  not  performed, 
be  regarded  as  a  penalty  and  not  enforceable,  or  shall 
it  be  taken  as  the  agreed  damages  of  the  party  in- 
jured? The  courts  often  say  that  the  intention  of  the 
parties  will  control.  But  we  are  met  with  two  difficul- 
ties ;  first,  how  to  ascertain  the  intention  of  the  parties, 
and,  second,  suppose  that  the  intention,  when  ascer- 
tained, violates  all  rules  of  damages  and  defeats  justice. 
As  a  matter  of  fact,  it  is  a  good  deal  of  a  fiction  to  say 
that  the  courts  will  apply  the  intention  of  the  parties. 
There  are  certain  rules  that  help  us  to  arrive  at  the 
solution  whether  to  allow  the  sum  mentioned  to  repre- 
sent the  damages,  or  not  to  represent  the  damages.  And 
in  arriving  at  that  solution  we  are  often  violating  the 
intention  that  is  expressed  as  plain  as  words  can  express 
anything. 

A  few  illustrations  out  of  the  great  number  that  are 
reported  in  the  books  are  given  below  under  several 
headings  and  will  serve  to  throw  light  on  this  subject.) 

Sec.  89.    Damages  Difficult  of  Ascertainment  and  Sum 

Reasonable. 

Case  No.  120.  Wallis  Iron  Wks.  v.  Monmouth  Park 
Assn.,  55  N.  J.  L.  132. 

Facts:  The  W.  I.  W.  agreed  to  complete  a  grand- 
stand for  a  race  course  by  a  certain  day  or  pay  $100  a 
day  for  every  day  thereafter  that  it  remained  incom- 
plete, "  which  said  sum  *  *  *  is  hereby  agreed  upon 
*     *     *     as  the  damages     *     *     *     and  not  by  way  of 


194  CONTRACTS 

penalty."  When  plaintiff  sued,  defendant  claimed  a 
right  to  reduce  the  sum  recoverable  by  $100  for  every 
day's  delay. 

Point  Involved:  That  an  amount  named  as  payable 
for  every  day's  delay  in  a  building  construction  contract, 
is  enforceable  if  the  damages  agreed  upon  are  reason- 
able in  respect  to  all  the  circumstances. 

Dixon,  J. :  In  the  present  case  the  default  consists  of 
a  breach  of  a  single  covenant.  *  *  *  It  is  plain  that 
the  loss  to  result  from  such  a  breach  is  not  easily  ascer- 
tainable. The  magnitude  and  importance  of  the  grand- 
stand may  be  inferred  from  its  cost,  $133,000.  It  formed 
a  necessary  part  of  a  very  extensive  enterprise.  *  *  * 
Its  worth  depended  upon  the  success  of  the  entire  ven- 
ture. How  far  the  non-completion  of  this  edifice  might 
effect  that  success  *  *  *  were  topics  for  conjecture 
only.  The  conditions  therefore  seem  to  have  been  such 
as  to  justify  the  parties  in  settling  for  themselves  the 
measure  of  compensation.  The  stipulations  of  parties 
for  specified  damages  on  a  breach  of  a  contract  to  build 
have  frequently  been  enforced  by  the  Courts.     *     *     * 

"In  the  case  at  bar  we  have  no  data  for  saying  that 
$100  a  day  was  unconscionable.     *     *     *" 

Question  120:  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  the  above  case? 

(2.)  A,  owning  a  retail  clothing  business  in  a  town  of  5,000 
people,  and  having  a  good  trade  throughout  that  town  and  sur- 
rounding country,  sold  it  to  B,  agreeing  not  to  set  up  a  rival 
business  for  ten  years  within  the  same  town,  and  in  event  of 
doing  so,  to  pay  B  $5,000.  A  broke  his  agreement  and  B  sues, 
proving  the  contract  and  A's  breach  thereof,  but  showing  no 
actual  damage.    Do  you  think  B  can  recover  the  $5,000  ? 

Sec.  90.    Larger  Sum  Than  Debt  Payable  in  Default  of 
Payment  of  Debt. 

Case  No.  121.  Goodyear  Co.  v.  Selz,  Schwab  &  Co.,  157 
111.  186. 


LIQUIDATED  DAMAGES  AND  PENALTIES       195 

Facts:  Suit  on  a  contract  for  the  monthly  rental  of 
certain  machines  to  be  computed  on  each  month's  out- 
put, payable  on  the  first  day  of  the  month  next  following 
with  a  provision  that  if  paid  before  the  15th  of  the  month 
a  discount  of  50  per  cent  was  to  be  allowed. 

Point  Involved:  Whether  the  provision  for  the  pay- 
ment of  a  larger  sum  than  the  debt  in  the  event  the  debt 
it  not  paid  when  due,  is  enforceable. 

Mr.  Chief  Justice  Wilkin:  "The  following  proposi- 
tions seem  to  be  sustained  by  the  authorities:  'Where  a 
large  sum,  which  is  not  the  actual  debt,  is  agreed  to  be 
paid  in  case  of  a  default  in  the  payment  of  a  lesser  sum 
which  is  the  actual  debt,  such  larger  sum  is  always  a 
penalty.  But  the  rule  is  otherwise  where  a  less  sum  is 
to  be  taken  for  a  greater  if  paid  at  a  certain  time.'  (5 
Am.  &  Eng.  Ency.  of  Law,  26.)  'Where  the  larger  sum 
mentioned  is  the  actual  debt,  and  a  smaller  sum  has  been 
agreed  -upon  as  a  release  if  paid  under  stated  condi- 
tions, the  failure  to  comply  with  the  easier  terms  gives 
the  creditor  the  right  to  enforce  payment  of  the  larger 
sum.'  In  doubtful  cases  courts  have  inclined  to  treat 
the  stipulation  as  a  penalty.     (Ibid  27.) 

"The  controlling  question  in  the  case  then  is,  what 
did  the  parties  intend  should  be  the  actual  rental  for  the 
machines — which  sum  was  to  be  the  actual  debt?  Mani- 
festly, the  draftsman  of  the  lease  intended  it  to  be  sus- 
ceptible of  the  construction  placed  upon  it  by  appellant, 
but  it  by  no  means  follows  that  the  parties  who  executed 
it  so  understood  it  or  should  be  bound  by  that  construc- 
tion. We  cannot  construe  the  fifth  paragraph  as  pro- 
viding for  a  discount  for  prepayment  of  the  debt.  That 
a  discount  of  50  per  cent  should  be  made  on  the  debt 
for  a  prepayment  of  but  fifteen  days  is  contrary  to  all 
business  experience,  and  most  unreasonable.  The  rent 
accruing  for  one  month  became  due  and  payable  on  the 
first  day  of  the  calendar  month  following.  Certainly 
the  parties  did  not  intend  that  there  should  be  then  due 
and  payable  more  than  50  per  cent  of  the  schedule  rate. 


196  CONTRACTS 

Only  that  amount  was  payable  at  any  time  between  the 
first  and  fifteenth  of  the  month.  It  is  to  be  presumed 
that  it  was  the  intention  of  the  parties  to  secure  to  the 
lessor  the  payment  of  reasonable  compensation  for  the 
use  of  its  machines,  and  no  more.  That  compensation 
could  not  be  one  dollar  if  paid  on  the  fifteenth,  but  double 
that  amount  if  paid  the  next  day.  Therefore,  to  hold 
that  it  was  intended,  in  a  case  like  this,  that  the  rent 
should  be  $599.27  one  day  and  $1,198.53  the  next,  except 
as  an  inducement  to  prompt  payment  of  the  lesser  sum, 
is  unreasonable. 

"Our  conclusion  is,  that  the  fifty  per  cent  clause  of 
the  instrument  should  be  construed  as  requiring  the 
payment  of  fifty  per  cent  of  the  rent  or  royalty  specified 
in  the  schedule  for  all  boots  and  shoes  made  during  one 
month  to  be  paid  on  the  first  day  of  the  next,  and  if 
not  paid  on  or  before  the  fifteenth  of  that  month,  the 
whole  amount  of  the  schedule  rates  to  become  payable. 
In  other  words,  by  the  terms  of  the  contract,  properly 
construed,  the  actual  debt  was  $599.27,  and  the  agree- 
ment to  pay  double  the  amount  is  in  the  nature  of  a 
penalty  to  insure  the  prompt  payment  of  the  sum 
actually  agreed  to  be  paid.  Longworth  v.  Askran,  15 
Ohio  St.  370,  is  an  authority  sustaining  this  construction 
of  the  lease." 

Question  121:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 

(2.)  A  sells  goods  to  B  for  $100,  under  an  agreement  that  if 
B  pays  within  thirty  days  he  shall  he  entitled  to  a  discount  of 
15  per  cent.  B  does  not  pay  within  30  days  and  claims  that  all 
he  owes  is  $85,  and  that  the  agreement  to  pay  $100  was  an  unen- 
forceable promise  to  pay  a  penalty.  Would  you  distinguish 
this  from  the  above  case  ?    "Why  ? 

Sec.  91.    A  Certain  Unvarying  Amount  Payable  for 
Breach  of  Covenants  of  Varying  Importance. 

Case  No.  122.    Wilhelm  v.  Eaves,  21  Oregon,  194. 
Facts:  This  case  involved  the  breach  of  an  agreement 
whereby  Eaves  agreed  to  appoint  Wilhelm  as  superin- 


LIQUIDATED  DAMAGES  AND  PENALTIES       197 

tendent  of  a  certain  market  and  Wilhelm  agreed  to  per- 
form various  duties  as  such  superintendent,  to  keep  the 
market  clean  and  wholesome,  to  appoint  special  night 
watchmen,  to  keep  open  certain  hours,  etc.  And  the  par- 
ties bound  themselves  "in  the  penal  sum  of  $200,"  "as 
fixed,  settled  and  liquidated  damages  to  be  paid  by  the 
failing  party  to  the  other.' '  Eaves  discharged  Wilhelm 
and  he  brought  suit  but  proved  no  actual  damages. 

Point  Involved:  That  if  a  contract  provides  for  the 
payment  of  a  certain  amount  of  money  in  the  event  of  the 
breach  of  any  of  several  undertakings,  which  are  of  vary- 
ing importance  so  that  the  actual  damage  would  differ 
in  each  case,  the  sum  will  be  deemed  a  penalty  and  the 
actual  damages  must  be  proved. 

Bean,  J. :  ' '  *  *  *  The  decision  of  the  question  as 
to  whether  a  given  sum,  provided  in  the  contract,  to  be 
paid  on  a  breach  thereof,  shall  be  considered  as  liquidated 
damages  or  as  a  penalty  is  often  inherently  difficult  and 
there  is  much  apparent  conflict  in  the  adjudged  cases. 
The  words  'liquidated  damages'  are  not  at  all  conclusive 
as  to  the  character  of  the  stipulation  *  *  *  and  the 
Courts  are  not  bound  by  the  language  used  by  the  parties 

*  *  *  and  the  tendency  of  the  Courts  is  in  favor  of 
an  interpretation  which  makes  the  sum  a  penalty. 

*  *  While  it  is  usually  said  that  the  intention  of  the  par- 
ties *  *  *  is  to  govern  in  cases  of  this  kind,  'such 
intention  *  *  *  is  determined  by  very  latitudinary 
construction.  To  be  potential  and  controlling  that  a 
stated  sum  is  liquidated  damages,  that  sum  must  be  fixed 
as  the  basis  of  compensation  and  substantially  limited 
to  it ;  for  just  compensation  is  *  *  *  the  measure  of 
damages.  *  *  *  Parties  may  liquidate  the  amount 
by  previous  agreement;  but  where  a  stipulated  sum  is 
evidently  not  based  on  that  principle,  the  intention  to 
liquidate  damages  will  either  be  found  not  to  exist  or  will 

be  disregarded,  and  the  stated  sum  treated  as  a  penalty. 

#  #     #  > 

<  ( *     *     *     There  may  be  deduced  certain  general  rules. 


198  CONTRACTS 

*  *  *  One  of  these  rules  is  that  when  a  contract  spec- 
ifying one  certain  sum  as  liquidated  damages  contains 
various  stipulations  *  *  *  and  the  damages  from 
the  breach  of  some  of  which  would  be  easily  ascertainable 

*  *  *  (and  not  as  to  the  others),  the  stipulated  sum 
will  be  regarded  as  a  penalty  and  not  liquidated  damages, 
though  the  language  of  the  parties  be  the  strongest  that 
could  be  employed  to  evince  a  contrary  intent.     *     *     * 

"This  rule  is  decisive  of  this  case.  This  contract  pro- 
vides (for  payment  of  $200  in  case  of  breach).  If  then, 
this  be  regarded  as  liquidated  damages,  that  precise  sum 
would  be  recoverable  for  the  breach  of  any  of  the  cove- 
nants, however  unimportant,  or  however  easily  the  dam- 
ages for  a  breach  thereof  could  be  ascertained  *  *  * 
the  stipulated  sum  must  be  construed  as  a  penalty  (and 
actual  damages  assessed).     *     *     •*• 

Question  122:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  the  above  case. 

(2.)  What  does  the  Court  state  to  be  of  controlling  importance, 
in  determining  whether  a  sum  is  liquidated  damages  or  a 
penalty  i 


PART    III 


THE  OPERATION  OF  CONTRACTS 


Chapter  Ten. 


Chapter  Eleven. 
Chapter  Twelve. 
Chapter  Thirteen. 
Chapter  Fourteen. 


The  general  rule.  A  contract  ope- 
rates to  confer  according  to  its 
tenor  rights  and  obligations  sole- 
ly upon  the  parties  thereto ;  with 
certain  exceptions. 

As  an  exception  a  contract  operates 
to  confer  rights  and  obligations 
on  undisclosed  principals. 

As  an  exception  a  contract  operates 
to  confer  rights  on  beneficiaries 
thereto. 

As  an  exception  a  contract  operates 
to  confer  power  of  assignment  to 
others  in  certain  cases. 

As  an  exception  a  contract  operates 
to  establish  upon  third  persons  a 
duty  of  non-interference. 


199 


CHAPTER    TEN 

THE  GENERAL  RULE;  CONTRACT  OPERATES 
SOLELY  BETWEEN  THE  PARTIES 

Sec.  92.    The  General  Rule  Stated. 

(Note :  A  contract  has  been  defined  in  the  first  part  of  this 
subject  as  a  certain  type  of  agreement  between  parties.  It  cre- 
ates obligations  that  are  voluntarily  assumed  between  persons, 
each  of  whom  has  chosen  the  other  as  the  party  with  whom  he 
will  deal.  We  may  accordingly  state  it  to  be  the  general  rule  that 
a  contract  operates  to  confer  according  to  its  tenor,  rights  and 
obligations  upon  the  parties  to  such  contract  and  upon  no  other 
person.  A  party  to  the  contract  has  the  right  to  enforce  it,  and 
he  is  bound  by  it.  But  no  other  party  can  claim  rights  under 
such  contract;  and  no  other  party  is  bound  by  its  obligations. 
To  this  general  rule  there  are  certain  very  important  exceptions 
to  be  treated  in  the  following  chapters.) 


CHAPTER    ELEVEN 

EXCEPTION  TO  THE  RULE;  RIGHTS  AND  OBLI- 
GATIONS OF  UNDISCLOSED  PRINCIPALS 

Sec.  93.    This  Exception  Noted. 

(Note:  If  an  agent,  possessing  the  authority  to  bind 
his  principal  on  the  particular  contract  made,  makes 
such  contract  in  his  own  name,  not  disclosing  his  prin- 
cipal, the  principal  has  a  right  to  enforce  the  liabilities 
of  the  third  person  on  such  contract  and  the  third  person 
upon  discovering  the  principal  may  elect  to  hold  such 
principal.  As  this  subject  is  treated  elsewhere  (see  the 
Cases  on  Principal  and  Agent)  we  may  simply  notice 
the  subject  at  this  point  to  indicate  its  bearing  here  and 
postpone  its  consideration  to  a  later  time.) 

200 


CHAPTER    TWELVE 

EXCEPTION  TO  THE  RULE;  RIGHTS  OF 
BENEFICIARIES  TO  CONTRACTS 

§  94.  General  Statement.  §  95.  Creditor  beneficiary  may  sue. 

Sec.  94.    General  Statement. 

(Introductory  note:  The  right  of  a  beneficiary  who  is  not 
a  party  to  a  contract  to  sue  thereon,  has  occasioned  much  dis- 
cussion and  much  difference  of  opinion.  It  would  not  be  advis- 
able to  attempt  to  review  the  authorities  or  to  give  anything  like 
a  general  treatment  of  the  subject  here.  With  various  qualifica- 
tions, it  seems  fairly  generally  settled  in  the  majority  of  the 
American  states  that  one  not  a  party  to  a  contract  but  who  will 
be  benefited  by  the  performance  thereof,  may  sue  if  he  is  ex- 
pressly mentioned  or  described  in  the  contract  as  one  upon  whom 
a  benefit  is  intended  by  the  parties  to  be  directly  conferred  and 
if  he  is  what  we  may  term  a  creditor  beneficiary,  that  is  one  to 
whom  an  obligation  is  owing  which  is  affected  by  the  contract; 
but  that  any  person  who  is  merely  incidentally  affected,  no 
matter  in  what  measure,  may  not  sue.  Certain  other  rules  have 
been  followed  in  some  cases  as  that  a  " donee  beneficiary"  may 
sue,  or  a  "sole  beneficiary,"  but  it  does  not  seem  wise  to  at- 
tempt an  extensive  discussion  of  the  subject  for  our  purposes.) 

Sec.  95.    Creditor  Beneficiary  May  Sue. 

Case  No.  123.    Lawrence  v.  Fox,  20  N.  Y.  268. 

Facts:  One  Holly,  at  the  request  of  the  defendant 
loaned  him  $300,  stating  at  the  time  that  he  owed  that 
sum  to  the  plaintiff  for  money  borrowed  of  him ;  and  that 
he  had  agreed  to  repay  it  on  the  following  day,  and  the 
defendant  as  a  part  of  the  transaction  and  in  considera- 

201 


202  CONTRACTS 

tion  for  the  loan  agreed  to  pay  the  money  to  the  plaintiff. 
This  is  a  suit  against  the  defendant  by  the  beneficiary 
of  that  agreement,  to  which  he  was  not  a  party,  and  the 
defense  is  that  not  being  a  party  thereto,  and  there  being 
no  privity  of  contract  between  plaintiff  and  defendant, 
plaintiff  cannot  sue  on  the  agreement  proved. 

Point  Involved:  Whether  a  beneficiary  to  a  contract 
between  other  parties,  by  which  an  obligation  running 
to  such  beneficiary  from  one  of  the  parties,  is  assumed 
by  the  other,  can  be  enforced  in  a  suit  by  the  beneficiary. 

H.  Gray,  J. :  "*  *  *  As  early  as  1806,  it  was  an- 
nounced by  the  Supreme  Court  of  this  state  *  *  * 
*  That  where  one  person  makes  a  promise  to  another  for 
the  benefit  of  a  third  person,  that  third  person  may  main- 
tain an  action  on  it.'  " 

Question  One  Hundred  amd  Twenty-three:  (1.)  State  the 
case  of  Lawrence  v.  Fox. 

(2.)  A,  having  a  newspaper  plant,  sells  the  same  to  B,  on 
B  's  promise  as  a  part  of  the  purchase  price  to  pay  A 's  creditors, 
one  of  the  creditors  sues  B  on  this  promise.    Can  he  recover  ? 

(3.)  A  contracts  with  B  that  he  will  erect  for  B  a  factory 
on  land  which  is  to  be  purchased  from  C,  if  C  will  sell  at  a  cer- 
tain price.  C  is  not  a  party  to  the  contract.  A  and  B  never 
proceed  with  the  contract.  C  serves  notice  on  A  and  B  that  he 
will  sell  for  the  price  stated.  Can  he  enforce  the  contract 
against  A  or  B  ? 


CHAPTER    THIRTEEN 
ASSIGNMENT  OF  CONTRACTS 

A.  Introductory.  C.  Power  to  assign  as  affected  by 

B.  Power     to     assign     contractual  present  existence  of  the  con- 

rights  and  obligations  without  tract. 

consent  of  the  other  party  to      D.  Effect  of  assignment. 

the  contract.  E.  What  constitutes  assignment. 

A.    Introductory. 
Sec.  96.    In  Explanation. 

(Note :  The  subject  of  assignment  of  contract  involves  more 
than  properly  comes  under  the  heading  "Operation  of  Con- 
tracts," but  it  unquestionably  involves  that  subject,  and  so  we 
may  for  convenience  treat  the  entire  topic  at  this  point.  Does  a 
contract  operate  to  empower  either  party  thereto  to  assign  rights 
or  obligations  thereunder?  If  so,  to  what  extent,  how  is  such 
assignment  effected,  and  what  results  follow  from  an  attempted 
exercise  of  the  power? 

We  must  notice  that  the  assignment  might  be  made  or  at- 
tempted either  with  or  without  the  consent  of  the  other  party 
to  the  contract.  Obviously,  it  is  the  case  of  the  lack  of  consent 
that  presents  difficulty,  and  when  we  speak  of  the  power  to  as- 
sign rights  or  obligations  we  generally  assume  that  the  consent 
of  the  other  party  to  the  contract  has  not  been  obtained. 

The  transfer  may  be  of  rights  or  obligations.  B  employs  A 
for  a  stated  period  on  a  salary.  We  have  the  following  rights 
and  obligations: 

On  A's  part:  Obligation  to  work  for  B.  Right  to  salary  on 
doing  the  work. 

On  B 's  part :  Right  to  A's  services.    Obligation  to  pay  salary. 

203 


204  CONTRACTS 

Here  A  might  attempt  to  transfer  either  his  right  to  a  salary 
or  his  obligation  to  perform  services,  or  both.  As  his  power 
of  transfer  might  differ  in  the  one  case  from  that  of  the  other, 
it  becomes  necessary  to  analyze  in  any  case  the  nature  of  the 
thing  attempted  to  be  assigned.) 

B.    Power  to  Assign  Contractual  Rights  and  Obligations 
Without  the  Other  Party's  Consent. 

§  97.  Assignment      of      contractual       §  98.  Assignment      of      contractual 
rights.  obligations. 

Sec.  97.    Assignment  of  Contractual  Rights. 

Case  No.  124.    Rodgers  v.  Torrent,  111  Mich.  680. 

Facts:  Bill  for  an  accounting.  Complainant  bases  his 
case  on  an  assignment  to  him  of  a  share  in  moneys  col- 
lected by  the  defendant. 

Question:  Whether  a  right  to  receive  money  already 
due  under  a  contract  is  assignable. 

Montgomeey,  J. :  *  *  *  *  *  If  it  be  conceded,  as  we 
think  it  should  be,  that  defendant  could  not  be  required 
to  rely  upon  the  complainant  to  perform  that  part  of  the 
contract  that  remains  executory  and  which  (another 
party)  undertook  to  perform,  the  fact  still  remains  that 
certain  sums  of  money  were  to  grow  due  under  the  con- 
tract to  Alexander  Rodgers  (the  assignor)  at  stated  in- 
tervals, which  he  was  at  these  times  entitled  to  receive. 
The  right  to  demand  and  receive  these  moneys  we  think 
is  assignable.  *  *  *  It  is  one  thing  to  say  that  a 
party  may  not  be  required  to  assume  contract  relations 
with  another,  and  to  rely  upon  such  other  to  perform 
stipulations  made  with  a  third  person,  and  another  thing 
to  hold  that  the  right  to  recover  money  under  a  contract 
performed  in  whole  or  in  part  shall  not  be  subject  to  as- 
signment.    *     *     *" 

Question  124:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 


ASSIGNMENT  OF  CONTRACTS  205 

Case  No.  125.    Re  Wright,  157  Fed.  544. 

No  yes,  Circuit  Judge  :  "It  may  be  conceded  that  this 
contract  as  a  whole  is  based  upon  personal  trust  and 
confidence,  and  is  not  assignable.  *  *  *  gut  there  is 
a  difference  between  an  absolute  assignment  of  a  con- 
tract and  an  assignment  of  rights  under  a  contract.  The 
personal  confidence  which  precludes  the  transfer  of 
rights  arising  out  of  a  contract  must  be  involved  in  the 
nature  of  the  rights  themselves.  *  *  *  It  is  not  or- 
dinarily involved  in  the  right  to  receive  moneys  due  or 
to  grow  due  under  a  contract ;  and  this  right  is  generally 

assignable    without  •  the    consent    of    the    other    party 

#     #     *  >> 

Question  125:  A  works  for  B  at  a  salary  of  $100  a  month. 
Can  he  assign  his  salary  to  C? 

A  orders  and  pays  for  goods  from  the  B  Company.  Can  he 
assign  the  right  to  receive  such  goods  to  C  ? 

(Note:  Generally  speaking  mere  rights  under  a  contract, 
which  are  entirely  separable  from  the  obligations  thereunder, 
are  assignable,  except  the  right  to  personal  services,  which  is 
never  assignable  by  the  party  entitled  to  the  services,  as  one 
may  choose  for  whom  he  will  work.) 

Sec.  98.    Assignment  of  Contractual  Obligations. 

Case  No.  126.    Sloan  v.  Williams,  138  111.  43. 

Facts:  Dupuy,  an  attorney  at  law,  made  a  contract 
with  Williams  by  which  Dupuy  was  to  conduct  suits,  pro- 
cure releases,  etc.,  in  order  to  perfect  the  title  to  certain 
lots  owned  by  Williams.  Dupuy  before  the  performance 
of  his  part  of  the  contract,  purported  to  assign  to  Sloan 
all  his  interest  therein.  Sloan  complains  that  Williams 
has  refused  to  carry  out  his  part  of  the  contract. 

Point  Involved:  Whether  an  obligation  to  render  serv- 
ices involving  peculiar  or  personal  credit  and  skill,  can 
be  assigned  without  the  consent  of  the  party  to  whom 
such  services  are  to  be  rendered. 


206  CONTRACTS 

Mr.  Justice  Magruder:  "*  *  *  The  main  ground 
(of  defense)  is  that  the  contract  is  one  that  calls  for  the 
personal  services  and  skill  of  one  of  the  parties  thereto, 
and,  therefore,  not  assignable.  We  think  this  objection 
is  well  taken.  Dupuy  was  a  lawyer  *  *  *  and,  by 
the  terms  of  the  contract,  was  required  to  make  use  of 
his  professional  skill  in  perfecting  the  title  to  the  lots  by 
instituting  and  carrying  on  legal  proceedings  *  *  * 
and  by  the  use  of  other  methods.  *  *  *  A  party 
who  thus  agrees  to  use  his  personal  skill  and  knowledge, 
and  has  been  contracted  with  by  reason  of  the  trust  and 
confidence  placed  in  him  personally,  cannot,  while  the 
agreement  is  still  executory,  substitute  another  in  his 
place  by  assignment,  in  order  to  perform  the  service, 
without  the  consent  of  the  other  contracting  party. 
*  *  *  It  is  true  that  after  the  contract  has  been  exe- 
cuted by  the  person  *  *  *  he  may  assign  the  right 
to  recover  compensation.     *     *     *" 

Question  126:  What  are  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case? 

(2.)  Suppose  D,  in  the  above  case,  had  attempted  to  assign 
his  right  to  fees  earned  by  him  personally  under  the  above  con- 
tract ;  would  the  assignment  have  been  effectual  ? 

Case  No.  127.  Demarest  v.  Dunton  Lumber  Co.,  161 
Fed.  264. 

Facts:  The  facts  are  stated  in  the  opinion. 

Point  Involved:  The  assignability  of  a  contract  to 
purchase  lumber  involving  also  the  credit  and  individ- 
uality of  the  purchaser. 

Ward,  Circuit  Judge:  "The  plaintiff  sues  as  assignee 
of  a  contract  dated  December  11,  1900,  between  W.  E. 
Kelly  &  Co.  and  the  Dunton  Lumber  Company,  and  com- 
plains that  the  defendant  has  failed  and  refused  to  de- 
liver to  him  lumber  covered  by  the  contract.  Under  the 
contract  the  lumber  company  sold  to  Kelly  &  Co.  the  en- 
tire cut  of  white  pine  lumber  for  1901,  except  so  much 


ASSIGNMENT  OF  CONTRACTS  207 

as  it  should  need  for  its  retail  trade  in  the  city  of  Rum- 
ford  Falls,  agreeing  to  retain,  not  the  best  of  the  lumber, 
but  only  an  average  grade  for  that  trade.  Delivery  was 
to  be  f.  o.  b.  cars  at  Rumford  Falls,  Kelly  &  Co.  to  pay 
within  10  days  from  date  of  invoice.  The  logs  were  to 
be  cut  in  lengths  of  12,  14,  and  16  feet ;  but  Kelly  &  Co. 
agreed  to  accept  some  lumber  shorter  than  12  feet,  not 
less  than  8  feet,  and  some  longer  than  16  feet.  The 
trial  judge  held  that  this  contract  was  not  assignable, 
and  that,  therefore,  the  plaintiff  had  no  right  of  action. 

"While  the  authorities  do  not  differ  as  to  the  principle 
that  a  contract  personal  in  its  nature  cannot  be  assigned 
by  one  party  without  the  consent  of  the  other,  they  differ 
in  the  application  of  the  principle;  the  question  in  each 
case  being  whether  the  contract  is  personal  or  not.  The 
law  on  the  subject  for  the  federal  courts  has  been  laid 
down  by  the  Supreme  Court  in  Arkansas  Smelting  Com- 
pany v.  Belding  Mining  Company,  127  U.  S.  379,  8  Sup. 
Ct.  1308,  32  L.  Ed.  246,  in  which  Mr.  Justice  Gray  said: 

"  'At  the  present  day,  no  doubt,  an  agreement  to  pay 
money,  or  to  deliver  goods,  may  be  assigned  by  the  per- 
son to  whom  the  money  is  paid  or  the  goods  are  to  be 
delivered,  if  there  is  nothing  in  the  terms  of  the  contract, 
whether  by  requiring  something  to  be  afterwards  done 
by  him,  or  by  some  other  stipulation,  which  manifests 
the  intention  of  the  parties  that  it  shall  not  be  assignable. 
But  every  one  has  a  right  to  select  and  determine  with 
whom  he  will  contract,  and  cannot  have  another  person 
thrust  upon  him  without  his  consent.  In  the  familiar 
phrase  of  Lord  Denman :  'You  have  the  right  to  the  bene- 
fit you  anticipate  from  the  character,  credit,  and  sub- 
stance of  the  party  with  whom  you  contract. ■  Humble  v. 
Hunter,  12  Q.  B.  310,  317;  Winchester  v.  Howard,  97 
Mass.  303,  305,  93  Am.  Dec.  93 ;  Boston  Ice  Co.  v.  Potter, 
123  Mass.  28,  25  Am.  Rep.  9;  King  v.  Batterson,  13  R.  I. 
117,  120,  43  Am.  Rep.  13 ;  Lansden  v.  McCarthy,  45  Mo. 
106.  The  rule  upon  this  subject,  as  applicable  to  the  case 
at  bar,  is  well  expressed  in  a  recent  English  treatise: 
'Rights  arising  out  of  contract  cannot  be  transferred, 


208  CONTRACTS 

if  they  are  coupled  with  liabilities,  or  if  they  involve  a 
relation  of  personal  confidence  such  that  the  party  whose 
agreement  conferred  those  rights  must  have  intended 
them  to  be  exercised  only  by  him  in  whom  he  actually 
confided. '    Pollock  on  Contracts,  425. 

4 'The  contract  under  consideration  is  not  merely  for 
the  sale  of  personal  property  for  cash,  but  implies  con- 
fidence in  Kelly  &  Co.,  because  they  were  to  have  10  days ' 
credit  after  title  to  the  lumber  passed  to  them,  and  be- 
cause the  amount  of  lumber  shorter  or  longer  than  the 
lengths  provided  for  in  the  contract  which  they  were  to 
accept  was  not  fixed.  So,  also,  the  amount  of  lumber  the 
lumber  company  needed  for  its  retail  trade  was  not  fixed, 
and  that  amount,  as  well  as  the  grade  of  lumber  retained, 
were  subjects  which  the  lumber  company  might  have 
been  willing  to  leave  open  with  Kelly  &  Co.,  but  not  with 
their  assigns.  The  rights  of  Kelly  &  Co.  were  coupled 
with  liabilities  and  involved  personal  confidence.  See, 
also,  Snow  v.  Nelson  (C.  C),  113  Fed.  353. 

"The  plaintiff  did  not  rely  upon  the  assignability  of 
the  contract  alone,  but  alleged  in  the  complaint  that  it 
was  assigned,  and  Van  Horn  (plaintiff's  assignor)  sub- 
stituted in  place  of  Kelly  &  Co.  with  the  approval  and 
consent  in  writing  of  the  lumber  company.  The  evidence 
relied  on  to  sustain  these  allegations  is  all  documentary, 
and  we  agree  with  the  trial  judge  that  it  fails  to  do  so. 
Some  of  the  letters,  taken  alone,  indicate  a  consent ;  but, 
read  all  together,  the  conclusion  that  the  lumber  com- 
pany never  assented  to  the  assignment,  and  that  Kelly 
&  Co.  acquiesced  in  its  refusal  to  do  so,  is  irresistible. 
In  the  letter  of  March  21,  1903,  written  to  the  lumber 
company  after  it  had  refused  to  make  further  deliveries, 
Kelly  &  Co.  say,  among  other  things : 

1 '  '  We  have  a  contract  with  you  under  date  of  the  11th 
day  of  December,  1900,  whereby  you  agreed  to  furnish 
us  a  specific  amount  of  lumber  during  the  year  1901. 
*  *  *  "We  hold  that  you  have  no  right  to  nominate 
the  party  with  whom  you  will  or  will  not  do  business  as 
our  representative,  and  we  now  say  to  you  that  we  will 


ASSIGNMENT  OF  CONTRACTS  209 

hold  you  for  any  damages  that  may  arise  or  have  arisen 
from  the  fact  of  your  not  having  furnished  this  lumber 
to  us  in  the  time  in  which  you  agreed  to  furnish  it.  *  *  * 
We  state  again  all  we  want  is  that  you  shall  fill  your 
contract  with  us  and  we  will  do  the  same  with  you,  and  if 
you  refuse  to  do  it  you  may  as  well  understand  first  as 
last  that  we  will  endeavor  to  make  you  pay  damages  as 
well  as  fill  the  contract.  We  trust  you  will  see  the  mat- 
ter as  we  do,  but  if  you  do  not  care  to  consider  it  in  a  i 
reasonable  manner,  you  may  begin  action,  or  we  will,  and 
the  sooner  the  better.' 
"The  judgment  is  affirmed." 

Question  127:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  What  did  the  United  States  Supreme  Court  hold  in  the 
Arkansas  Smelting  Co.  case  ? 

(3.)  B  agreed  to  supply  K,  a  cake  manufacturer,  all  the  eggs 
required  in  K's  business  for  one  year,  K  agreeing  not  to  buy; 
elsewhere  during  that  period.  Statements  of  account  were  to 
be  rendered  every  fourteen  days,  B  to  draw  for  the  amount  at 
two  months  from  date  of  delivery.  K  thereafter  purchased 
another  company,  and  then  transferred  the  old  and  new  busi- 
ness to  a  new  company  called  George  Kemp,  Limited,  of  whose 
20,000  shares  he  held  all  but  seven.  When  B  heard  of  this 
amalgamation  he  refused  to  supply  the  eggs  to  the  new  company 
and  claimed  that  his  contract  was  at  an  end.  K  sues,  claiming 
breach.  Can  K  recover?  (Kemp  v.  Baerselman  (1906),  2  K.  B. 
(Eng.)  604,  2  British  Ruling  Cases,  436.) 

C.    Power  to  Assign  as  Affected  by  Present  Existence  of 

the  Contract. 

Sec.  99.    Contractual  Rights  to  Be  Acquired  in  the 

Future. 

Case  No.  128.    Mulhal  v.  Quin,  1  Gray,  105. 

Facts:  An  attempted  assignment  of  rights  to  arise 
under  a  contract  expected  to  be  made,  but  not  yet  made, 
with  the  City  of  Boston. 


210  CONTRACTS 

Point  Involved:  Can  one  assign  rights  under  a  con- 
tract which  is  not  yet  in  existence? 

Shaw,  C.  J. :  * '  *  *  *  There  was  no  subsisting  en- 
gagement under  which  wages  were  to  be  earned,  and  it 
depended  altogether  upon  a  future  engagement,  whether 
anything  would  ever  become  due.     *     *     * 

"None  of  the  cases  go  so  far  as  to  hold  that  the  mere 
possibility  *  *  *  of  earning  wages  *  *  *  em- 
ployment at  a  future  time  is  capable  of  being  assigned. 
The  debt  may  be  conditional,  uncertain  as  to  amount  or 
contingent,  but  *  *  *  must  be  an  actual  or  possible 
debt,  due  or  to  become  due.     *     *     *  " 

Question  128:    State  the  above  case. 

Case  No.  129.    Mallin  v.  Wenham,  209  111.  252. 

Facts:  M  was  employed  by  A  &  Company  at  a  salary 
of  $100  per  month.  He  had  no  definite  contract  of  em- 
ployment, but  was  employed  by  the  month.  He  could 
have  quit  or  A  &  Company  could  have  discharged  him  at 
any  time  without  liability.  To  secure  a  loan  from  W 
he  executed  an  instrument  stating :  ' '  I  do  hereby  trans- 
fer, assign  and  set  over  to  C.  F.  Wenham  *  *  *  all 
salary  or  wages  due  or  to  become  due  me  from  Armour 
&  Co.  *  *  * ' '  M  now  contends  that  this  assignment 
was  invalid. 

Point  Involved:  The  assignability  of  wages  to  be 
earned  under  an  existing  contract  of  employment  of  in- 
definite duration. 

Mr.  Justice  Ricks:  "*  *  *  An  assignment  of 
wages  to  be  earned  in  the  future  under  an  existing  em- 
ployment is  valid.  *  *  *  It  is  not  necessary  that 
there  be  an  express  hiring  for  a  definite  time,  but  the 
existence  of  the  employment  at  the  time  of  the  assign- 
ment is  sufficient.  In  the  case  at  bar,  appellant  was 
#  *  *  in  the  actual  employment  of  Armour  &  Com- 
pany at  a  fixed  price  per  month.    It  is  true  that  such 


ASSIGNMENT  OF  CONTRACTS  211 

employment  was  not  of  any  definite  duration,  and  ap- 
pellant might  abandon  the  same  at  any  time  or  his  em- 
ployer might  discharge  him.  The  subject  matter  of  the 
contract  had  but  a  potential  existence,  but  it  was  such 
a  property  right  as  might  legally  be  disposed  of.  *  *  *  " 

Question  129:    State  the  doctrine  of  the  above  case. 

D.    Effect  of  Assignment. 

§  100.  The   liability  of  assignor  to  §  102.  The  assignee  as  the  successor 
assignee.  to  the  title  of  the  assignor. 

§  101.  The  liability  of  the  assignor  §  103.  The  notice  necessary  to  pro- 
to  the  other  party  to  the  tect  the  assignee's  rights, 

contract. 

Sec.  100.    The  Liability  of  the  Assignor  to  the  Assignee. 

Case  No.  130.    Tyler  v.  Bailey,  71  111.  34. 

Facts:  A  assigned  to  B  seven  land  warrants.  They 
turned  out  to  be  counterfeits.    B  sues  A. 

Point  Involved:  Whether  one  who  assigns  a  chose 
in  action,  warrants  it  to  be  what  it  purports  to  be. 

Mr.  Justice  Walker  :  ' '  *  *  *  A  person  who  sells 
personal  property  is  always  understood  as  warranting 
the  title,  and  as  a  general  if  not  a  uniform  rule,  a  person 
passing  bills  or  commercial  paper,  or  selling  a  chose  in 
action  is  understood  and  held  as  guarantor  of  the  gen- 
uineness of  the  instrument,  and  this  whether  he  does 
so  in  terms,  or  is  silent  when  the  transfer  is  made. 


Question  130:    State  the  above  case. 

(Note :  In  the  assignment  of  a  contract  to  be  performed 
there  is  no  implied  warranty  by  the  assignor  that  it  will  be  per- 
formed. His  undertaking  is  confined  to  the  warranties  that  he 
has  title,  and  that  his  right  is  valid  and  subsisting  as  what  it 
purports  to  be.  The  assignee  takes  the  risk  that  an  executory 
contract  will  be  performed.) 


212  CONTRACTS 

Sec.  101.    The  Liability  of  the  Assignor  to  the  Other 
Party  to  the  Contract. 

Case  No.  131.  Grommes  v.  St.  Paul  Trust  Co.,  147  111. 
634. 

Facts:  A  was  B's  tenant.  With  B's  consent  he 
transferred  his  lease  to  R,  who  entered  into  possession 
and  for  a  time  paid  rent  and  then  defaulted.  B  sues  A 
for  accruing  rent. 

Point  Involved:  Whether  the  lessee  continues  liable 
on  the  lease  (as  surety)  on  its  assignment  with  the  con- 
sent of  the  lessor. 

Mb.  Justice  Magruder:  "*  *  *  Nor  did  the  sale 
of  the  saloon  by  the  tenant  to  Rose,  nor  the  acceptance 
of  rent  from  the  latter  by  the  landlord  operate  as  a 
discharge  (of  the  original  lessees).  The  assignee  of  a 
leasehold  estate  is  liable  for  the  rent  accruing.  *  *  * 
In  case  the  rent  is  not  paid  by  the  assignee  as  it  becomes 
due,  an  action  may  be  sustained  against  the  lessee  there- 
for; and  it  makes  no  difference  in  this  respect  that  the 
lessor  may  have  received  rent  from  the  assignee  and 
accepted  him  as  a  tenant  in  the  premises.  *  *  *  If 
there  be  not  a  substitution  of  the  assignee  in  place  of 
the  original  lessee,  and  a  clear  intent  to  make  a  new 
contract  with  the  former  and  to  discharge  the  latter 
from  further  liability  under  the  lease,  both  will  be  held 
liable  to  the  lessor. ' ' 

Question  131:  (1.)  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 

(2.)  What  would  release  the  original  lessee  ? 

Sec.  102.    The  Assignee  as  the  Successor  to  the  Title  of 

the  Assignor. 

Case  No.  132.    Westfal  v.  Jones,  23  Barb.  (N.  Y.)  9. 

Facts:  J.  gave  a  mortgage  on  his  lands  to  P.,  who 
assigned  to  W.,  who  now  seeks  to  foreclose  against  J. 
The  transaction  between  J.  and  P.  was  illegal  and  fraud- 


ASSIGNMENT  OF  CONTRACTS  213 

ulent,  but  W.  knew  nothing  of  this  and  paid  value  for 
the  mortgage.  This  is  a  suit  to  foreclose  the  mortgage. 
Point  Involved:  Whether  an  assignee  of  a  mortgage 
(or  any  non-negotiable  paper)  takes  the  title  subject  to 
the  defenses  claimed  by  the  obligor  but  unknown  to  the 
assignee. 

Wells,  J.:  "•  *  *  Does  the  plaintiff,  being  a 
bona  fide  purchaser  and  assignee  *  *  *  stand  in 
any  better  condition  than  the  person  from  whom  he  de- 
rived his  title?  It  is  a  well  settled  principle  that  the 
assignee  of  a  chose  in  action  takes  it  subject  to  all  equi- 
ties which  existed  against  it  in  the  hands  of  an  assignor. 
*  *  *  If  he  had  no  right  to  recover  before  the  assign- 
ment, it  seems  perfectly  clear  he  could  confer  none  upon 
another.  Persons  purchasing  this  class  of  securities  can 
always  protect  themselves  by  inquiring  of  the  obligors 
whether  they  are  valid;  and  if  they  purchase  upon  the 
faith  of  the  obligor's  representations  that  the  securities 
are  valid,  the  latter  would  clearly  be  estopped  from  set- 
ting up  the  contrary.' ' 

Question  132:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  A  employed  by  B  assigned  his  right  to  money  due  from 
B.  In  a  suit  by  the  assignee  B  set  up  that  A,  before  the  assign- 
ment, was  liable  for  a  failure  to  fulfil  his  contract  to  sell  at  the 
highest  market  price.  C,  the  assignee,  knew  nothing  of  this 
defense  at  the  time  he  accepted  the  assignment,  and  he  paid  A 
the  full  face  value  of  the  money  due  from  B.  Is  the  defense 
good  against  C?     (McKenzie  v.  Hodgkin,  126  Cal.  591.) 

(3.)  A,  an  employee  of  B,  is  accustomed  to  receive  his  salary 
from  B  at  the  end  of  every  month.  On  the  first  of  July  he  asks 
B  to  advance  him  his  July  salary,  which  B  does.  On  July  30 
A  goes  to  the  office  of  C,  a  money  lender  and  borrows  a  sum 
of  money  from  him,  assigning  his  July  salary  (which  is  not 
known  to  C  to  be  paid)  as  security  therefor.  On  August  first 
A  is  rightfully  discharged  by  B.  On  August  31st  A,  not  having 
worked  during  the  month,  goes  to  D,  another  money  lender,  and 
purports  to  assign  his  August  salary,  which  he  represents  to  be 


214  CONTRACTS 

earned  and  unpaid.     C  and  D  having  given  notice,  and  being 
refused  payment,  begin  suit  against  B.    Can  either  recover? 

(Note:  Negotiable  paper  has  a  peculiar  property  of  assign- 
ability (known  as  negotiability)  which  enables  a  holder  in  due 
course,  i.  e.,  a  purchaser  for  value,  before  the  paper  is  over 
due,  without  notice,  to  take  a  better  title  than  the  seller  had. 
See  the  subject  of  Negotiable  Paper,  in  the  cases  upon  which, 
it  will  appear  that  the  defenses  of  fraud,  payment  before  ma- 
turity, failure  or  lack  of  consideration,  and  the  like,  cannot  be 
made  against  a  holder  in  due  course.) 

Case  No.  133.    Mott  v.  Clark,  9  Pa.  St.  399. 

Rogers,  J.:  "It  is  a  general  and  well  settled  rule 
*  *  *  that  the  assignee  of  a  chose  in  action  takes  it 
subject  to  the  same  equities  it  was  subject  to  in  the  hands 
of  the  assignor.  *  *  *  But  this  rule  is  generally 
understood  to  mean  the  equity  residing  in  the  original 
obligor  or  debtor  and  not  an  equity  residing  in  some 
third  person  against  the  assignor.  *  *  *  Tne  as_ 
signee  can  always  go  to  the  debtor  and  ascertain  what 
claims  he  may  have  against  the  bond  or  other  chose  in 
action,  which  he  is  about  purchasing.  *  *  *  gut  he 
may  not^e  able  with  the  utmost  diligence  to  ascertain 
the  latent  equity  of  some  third  person  against  the  obligee. 
He  has  not  any  object  to  which  he  can  direct  his 
inquiries." 

Question  133:    What  does  this  case  decide  ? 

Sec.  103.   Notice  Necessary  to  Protect  Assignee's  Rights. 

Case  No.  134.    Harvin  v.  Galluchat,  28  S.  C.  211. 

Facts:  A  owed  B  a  sum  of  money.  B  assigned  his 
rights  to  C.  Afterwards,  and  before  C  had  notified  A 
of  the  assignment,  A,  not  knowing  of  the  assignment, 
paid  B.    This  is  a  suit  by  C  against  A. 

Point  Involved:  Must  the  assignee  protect  his  title 
by  notifying  the  debtor? 


ASSIGNMENT  OF  CONTRACTS  215 

Mr.  Chief  Justice  Simpson:  "*  *  *  It  is  laid 
down  in  all  the  authorities  upon  the  subject  of  assign- 
ment of  unnegotiable  paper  *  *  *  that  in  order  to 
protect  his  rights,  under  an  assignment,  the  first  duty  of 
the  assignee  is  to  give  notice  to  the  debtor.  A  failure  to 
do  this  places  the  assignee  at  the  peril  of  losing  the  debt 
either  by  a  subsequent  assignment  to  another  party,  or 
new  defenses  existing  between  the  assignor  and  the 
debtor,  or  a  payment  by  the  debtor  to  the  assignor. 

Question  134:    State  the  rule  of  the  above  case. 

(Note:  Here  also  negotiable  paper  differs  from  other  forms 
of  obligation.  One  who  buys  negotiable  paper  is  under  no  obli- 
gation to  notify  the  holder  of  the  paper  that  he  has  acquired  it. 
He  may  safely  rest  upon  the  rule  that  the  debtor,  knowing  the 
negotiable  character  of  the  paper,  will  not  pay  it  except  to  the 
holder  thereof.) 

E.   What  Constitutes  Assignment. 
Sec.  104.   What  Constitutes  Assignment. 

Case  No.  135.   Holbrook  v.  Payne,  151  Mass.  383. 

Facts:  P.  having  done  some  work  for  the  town  of 
Winchester,  gave  the  following  writing  to  one  Cutting: 

Winchester,  July  12,  '88. 
"Town  of  Winchester: 

1  *  Pay  to  the  order  of  A.  Cutting,  ninety  and  thirty-two 
hundredths  dollars.  Value  received,  and  charge  the  same 
to  the  account  of  H.  B.  Payne." 

The  Town  of  Winchester  never  accepted  this  order. 
The  question  was  whether  C,  by  the  mere  force  of  such 
order,  became  entitled  to  the  funds,  if  any,  owing  P. 

Point  Involved:  Whether  an  order  to  pay  money, 
specifying  no  particular  fund,  is  an  assignment. 

Holmes,  J.:  "*  *  *  There  is  no  doubt  that  an 
order  for  a  specific  fund,  identified  by  the  order  itself, 
may  be  good  assignment.     *     *     *     On  its  face  the  order 


216  CONTRACTS 

given  to  the  claimant  by  the  defendant  does  not  refer  to 
a  particular  fund  or  debt,  but  is  an  ordinary  negotiable 
draft,  or  unaccepted  bill  of  exchange,  drawn  upon  the 
town,  upon  the  general  credit  of  the  drawer.  *  *  * 
The  fact  that  the  order  is  a  negotiable  instrument  on 
its  face  shows  that  it  is  not  drawn  against  a  particular 
fund.  If  it  were  drawn  against  a  particular  fund  it  would 
not  be  negotiable.  *  *  *  The  case  is  stronger  for 
holding  a  check  upon  a  bank  to  be  an  assignment.  *  *  * 
Yet  the  weight  of  authority  is  that  a  check  is  not  an 
assignment.    *    *    *" 

Question  135:  State  the  question  involved  in  the  above  case 
and  the  Court's  decision. 

(2.)  Is  a  check  on  a  bank  an  assignment  of  the  fund  in  the 
bank? 

(Note:  To  hold  that  the  order  in  the  above  case  is  not  an 
assignment  does  not  indicate  that  it  has  no  legal  effect.  As  a 
matter  of  fact,  it  is,  as  the  case  states,  a  bill  of  exchange,  and 
being  accepted  creates  a  personal  liability  on  the  acceptor.  Be- 
fore acceptance  the  drawer  has  a  liability,  which  also  in  a  sec- 
ondary sense  continues  after  acceptance.) 

Case  No.  136.    In  re  Hanna,  105  Fed.  587. 

An  instrument  to  the  following  effect  was  held  to  con- 
stitute an  assignment.  "To  T.  Please  pay  to  the  order 
of  P,  $281.88  out  of  any  balance  due  us  remaining  in 
your  hands." 

Question  136:    State  this  case. 


CHAPTER    FOURTEEN 

INTERFERENCE  WITH  CONTRACTUAL  RELA- 
TIONSHIPS BY  THIRD  PERSONS 

Sec.  105.    Operation  of  Contract  to  Create  a  Right  of 
Non-interference  by  Third  Persons. 

Case  No.  137.  London  Guarantee  Co.  v.  Horn,  206  111. 
493. 

Facts:  This  is  a  suit  brought  by  Gustave  Horn  against 
the  L.  G.  Co.  to  recover  damages  alleged  to  have  been 
caused  him  by  the  defendant  in  procuring  his  discharge 
by  Arnold,  Schwinn  &  Co.  of  Chicago,  as  a  foreman 
of  the  frame  department  of  its  bicycle  factory.  He  al- 
leged that  he  was  injured  while  operating  a  milling  ma- 
chine and  that  he  had  a  claim  on  that  account  against 
Arnold,  Schwinn  &  Co.;  that  his  employers  carried  in- 
surance against  loss  by  damage  claims  of  employees, 
and  that  the  insurance  company  procured  his  discharge 
because  he  would  not  settle  at  a  small  amount  offered  by 
them.  He  was  not  employed  for  any  particular  time  and 
could  have  been  discharged  by  his  company  at  any  time 
and  for  any  reason,  without  liability  on  the  employer's 
part,  but  he  alleged  and  produced  evidence  tending  to 
prove  that  the  sole  reason  he  was  discharged  was  the 
interference  of  the  insurance  company. 

Point  Involved:  Whether  a  person  has  a  cause  of  ac- 
tion for  damages  against  another  who  interferes  to  pro- 

217 


218  CONTRACTS 

cure  his  discharge  by  his  employer,  even  though  he  was 
not  employed  for  any  particular  time,  and  could  have 
been  rightfully  discharged  at  any  time  by  his  employer, 
the  reason  for  such  interference  being  his  refusal  to 
settle  a  cause  of  action  upon  which  the  party  procuring 
the  discharge  was  liable  as  insurer?  Inferentially, 
whether  a  third  person  is  liable  who  maliciously  inter- 
feres to  cause  a  breach  of  any  contract,  and  what  con- 
stitutes malice  therein? 

Mr.  Justice  Scott  :  ."  *  *  *  We  have  been  favored 
with  most  elaborate  and  exhaustive  briefs  by  counsel  for 
both  parties.  The  case  principally  relied  upon  by  coun- 
sel for  appellant  is  that  of  Allen  v.  Flood,  67  L.  J.  Q.  B. 
119,  decided  by  the  House  of  Lords  in  1897.  This  case 
has  excited  a  wide  discussion,  and  was  considered  at 
length  by  this  court  in  Doremus  v.  Hennessy,  176  111. 
608.  In  this  English  case  certain  boiler-makers,  mem- 
bers of  a  trade  union,  in  common  employment  with  the 
plaintiffs,  who  were  shipwrights,  members  of  a  rival 
organization,  working  on  wood,  objected  to  working  with 
the  latter  on  the  ground  that  in  a  previous  employment 
they  had  been  engaged  on  iron  work,  it  being  contrary 
to  the  regulations  of  the  union  to  which  the  boiler-makers 
belonged  for  shipwrights  to  do  work  of  that  character. 
Allen,  as  a  representative  of  the  boiler-makers,  saw  the 
manager  of  their  employer,  to  whom  he  stated  that  if 
the  shipwrights,  who  were  engaged  from  day  to  day,  were 
not  dismissed,  the  boiler-makers  would  leave  their  work 
or  be  called  out  by  their  union.  The  shipwrights  were 
thereupon  discharged  and  brought  an  action  against 
Allen.  Their  right  to  recover  was  denied,  principally 
upon  the  ground  that  every  workman  has  a  right  to  exer- 
cise his  own  option  with  regard  to  the  persons  in  whose 
society  he  will  agree  to  continue  to  work,  and  that  when 
the  employer  was  confronted  with  a  situation  where  he 
would  lose  the  services  either  of  the  boiler-makers  or 
the  shipwrights,  he  had  the  right  to  elect  which  class  of 
workmen  to  discharge,  and  electing  to  discharge  the  ship- 


INTERFERENCE  WITH  CONTRACT      219 

weights,  both  he  and  the  boiler-makers  were  within  their 
legal  rights  and  no  cause  of  action  arose. 

II*  *  s 

"In  Quinn  v.  Leathern,  App.  Cas.  of  1901,  p.  495  (de- 
cided by  the  House  of  Lords),  Lord  Macnaghten,  in 
speaking  of  Allen  v.  Flood,  stated  that  its  head-note 
might  well  have  run  in  these  words :  '  An  act  which  does 
not  amount  to  a  legal  injury  cannot  be  actionable  be- 
cause it  is  done  with  a  bad  intent,'  and  in  this  case  last 
referred  to  it  is  said,  that  'it  is  a  violation  of  legal  right 
to  interfere  with  contractual  relations  recognized  by 
law,  if  there  be  no  sufficient  justification  for  the  inter- 
ference. ' 

"We  are  of  opinion  that  the  contention  of  appellant 
in  the  case  at  bar,  to  the  effect  that  competition  in  trade, 
employment  or  business  is  such  a  justification,  is  in  ac- 
cord with  the  authorities.  This  view  finds  support  in 
the  case  of  Chambers  v.  Baldwin,  15  S.  W.  Eep.  57,  where 
it  was  held  that  a  party  to  a  contract  for  the  sale  of 
goods  cannot  maintain  an  action  against  one  who  ma- 
liciously, and  with  design  to  injure  him  and  to  benefit 
himself  by  becoming  a  purchaser  in  his  stead,  advises 
and  procures  the  other  party  to  break  the  contract. 

a  *       *       # 

"In  our  judgment  the  cases  cited  by  appellant,  in  so 
far  as  they  lend  support  to  its  theory,  will  be  found  to 
be  cases  where  the  party  who  secured  the  discharge  of 
the  employee  was  in  some  way  in  competition  with  that 
employee  in  the  business  or  work  in  which  the  employee 
was  then  engaged,  or  was  a  member  of  some  organization 
which  was  in  competition  with  the  employee  or  some  or- 
ganization to  which  that  employee  belonged,  and  the  fact 
that  such  competition  existed  has  been  treated  by  some 
of  the  courts  as  justification  for  the  act  of  the  defendant 
in  bringing  about  the  discharge.  *  *  *  While  it  is 
true  that  the  temporal  interests  of  Horn  and  appellant 
were  involved  in  the  negotiations  between  them,  we  be- 
lieve that  the  authorities  which  look  upon  competition 
as  a  justification  for  the  act  of  one  party  in  securing  the 


220  CONTRACTS 

discharge  of  an  employee  have  regarded  the  term  in  a 
more  restricted  sense,  and  given  to  the  term  'competition' 
its  ordinary  meaning  and  signification.  This  conclusion 
is  certainly  warranted  by  the  reasoning  in  Doremus  v. 
Hennessy,  supra,  where  this  court  discusses  competition 
as  a  defense  to  an  action  of  this  character.  It  cannot  be 
held  that  appellee  and  appellant  were,  in  any  ordinary 
sense  of  the  term,  in  competition  with  each  other.  It  is 
also  to  be  observed  that  the  injury  which  it  was  sought 
to  visit  upon  Horn  was  not  primarily  to  subject  him  to  a 
deprivation  of  his  employment,  but  was  to  compel  him 
to  surrender  a  right  not  connected  with  his  employment. 
If  the  only  object  of  appellant  had  been  to  secure  ap- 
pellee's discharge  for  the  purpose  of  obtaining  his  posi- 
tion for  another,  or  for  the  reason  that  the  employment 
of  appellee  by  Arnold,  Schwinn  &  Co.  in  some  way  con- 
flicted with  the  right  of  appellant,  or  some  organization 
to  which  it  belonged,  to  obtain  the  same  or  similar  em- 
ployment, a  very  different  question,  and  one  not  now 
before  this  court,  would  be  presented,  and  Allen  v.  Flood, 
supra,  and  other  cases  of  that  character  cited  by  appel- 
lant, would  then  be  worthy  of  greater  consideration. 

"It  is  further  contended  on  the  part  of  appellant,  that 
while  the  evidence  may  have  shown  that  it  was  animated 
by  malice,  in  the  ordinary  acceptation  of  the  term,  to- 
ward Horn,  the  proof  fails  to  show  any  legal  malice.  In 
this  connection  it  is  argued  that  appellant  had  the  right 
to  have  Horn  discharged  under  the  terms  of  the  con- 
tract, or  if  it  did  not  have  that  right,  that  it  seriously  and 
in  good  faith  believed  that  it  had,  and  that  it  is  thereby 
relieved  of  any  imputation  of  malice.  There  is  no  provi- 
sion in  the  policy  which  by  the  wildest  stretch  of  the 
imagination  could  be  held  to  give  any  such  right  to  ap- 
pellant, and  its  conduct  in  attempting  to  secure  a  settle- 
ment of  this  claim  shows  it  to  have  been  animated  by  a 
wanton  disregard  of  the  rights  of  the  appellee.  He  was 
first  told  by  the  attorney  of  appellant  that  unless  he 
settled  for  a  trifling  amount  appellant  would  have  him 
discharged  by  Arnold,  Schwinn  &  Co., — a  threat  to  do 


INTERFERENCE  WITH  CONTRACT      221 

that  which  this  attorney  must  have  known  his  client 
had  no  right  to  do.  Afterward  Robinett,  the  agent  for 
the  company,  made  the  same  threat,  and  upon  his  at- 
tention being  called  to  the  fact  that  the  policy  gave  him 
no  power  to  require  Horn's  discharge,  he  said  to  Arnold, 
Schwinn  &  Co. :  'If  you  don't  discharge  him  I  will  have 
to  cancel  this  policy  today.  I  am  here  to  bring  this  case 
to  a  focus  today,  and  if  you  refuse  to  lay  him  off  I  will 
cancel  it.'  When  Mr.  Robinett  made  this  threat,  which 
resulted  in  appellee 's  discharge,  he  was  making  a  threat 
to  do  an  unlawful  thing, — to  do  a  thing  which  appellant, 
by  the  terms  of  the  contract,  had  no  right  to  do.  The 
contract  provided  only  for  its  cancellation  upon  five  days' 
notice.  It  is  not  pretended  that  any  such  notice  had 
been  given,  but  Robinett  secured  Horn's  discharge  by 
threatening  to  cancel  the  contract  'today.'  We  think 
it  perfectly  apparent  that  the  attorney  for  appellant,  and 
its  agent,  Robinett,  each  sought  to  bring  about,  and 
finally  did  bring  about,  the  discharge  of  appellee  by 
threatening  to  do  acts  which  each,  respectively,  knew  he 
had  no  right  to  do. 

1 '  Malice,  in  its  legal  sense,  means  a  wrongful  act  done 
intentionally,  without  just  cause  or  excuse;  the  willful 
violation  of  a  known  right.  (19  Am.  &  Eng.  Ency.  of 
Law, — 2d  ed. — p.   623.)     Were  the  acts   of  appellant 

wrongful? 

1 1 «     *     * 

"Arnold,  Schwinn  &  Co.  had  the  undoubted  right  to 
discharge  Horn  whenever  it  desired.  It  could  discharge 
him  for  reasons  the  most  whimsical  or  malicious,  or  for 
no  reason  at  all,  and  no  cause  of  action  in  his  favor 
would  be  thereby  created;  but  it  by  no  means  follows 
that  while  the  relations  between  Arnold,  Schwinn  &  Co. 
and  Horn  were  pleasant,  and  while,  as  the  evidence 
shows,  it  was  the  expectation  of  the  company  that  Horn 
would  continue  in  its  employ  'all  the  year  around,' 
that  the  interference  of  appellant,  whereby  it  secured  the 
employer  to  exercise  a  right  which  was  given  it  by  the 
law,  but  which,  except  for  the  action  of  appellant,  it 
would  not  have  exercised,  is  not  actionable. 


222  CONTRACTS 

"In  our  own  State,  the  case  of  Doremus  v.  Hennessy 
is  first  reported  in  62  111.  App.  391.  Plaintiff  there  kept 
a  laundry  office,  where  she  received  clothing  which  her 
patrons  desired  to  have  laundered.  She  would  then  pro- 
cure persons  operating  laundries  to  do  the  work  and 
return  the  garments  to  her  for  delivery  to  her  customers. 
The  defendants  were  members  of  the  Chicago  Laundry- 
men's  Association.  She  charged,  by  her  declaration,  that 
the  defendants,  by  false  representations  and  by  threats 
and  intimidation,  induced  certain  parties  who  had  been 
doing  the  work  for  her  to  break  their  contracts  and  en- 
gagements with  her.  The  Appellate  Court,  after  stating 
that  it  is  now  well  established  that  in  civil  actions  the 
conspiracy  is  not  the  gravamen  of  the  charge  but  may  be 
pleaded  and  proved  in  aggravation  of  the  wrong,  de- 
clares the  law  to  be,  that  an  action  may  be  maintained 
for  the  malicious  interference  with  the  business  of  an- 
other, his  occupation,  profession  or  way  of  obtaining  a 
livelihood,  and  affirmed  a  judgment  of  $6,000  in  favor  of 
the  plaintiff.  The  case  came  to  this  court,  where  it  is 
reported  in  176  111.  608.  The  judgment  of  the  Appellate 
Court  was  affirmed,  and  it  appears  from  the  statement 
of  facts  made  by  this  court  that  with  some  of  the  per- 
sons who  did  work  for  her  the  arrangement  was  that 
they  would  do  her  work  as  long  as  the  laundry  associa- 
tion did  not  interfere,  and  that  these  persons,  among 
others  with  whom  she  had  contracts  for  specific  periods, 
were  induced  by  threats  made  by  the  laundry  associa- 
tion to  cease  connection  in  business  with  appellee.  Ap- 
pellants contended  that  their  acts  were  not  mere  mali- 
cious acts,  done  solely  with  the  intent  to  injure  plaintiff 's 
business,  but  were  in  the  line  of  legitimate  competition. 
It  was  there  said  by  this  court  (p.  614) :  'No  persons, 
individually  or  by  combination,  have  the  right  to  di- 
rectly or  indirectly  interfere  or  disturb  another  in  his 
lawful  business  or  occupation,  or  to  threaten  to  do  so, 
for  the  sake  of  compelling  him  to  do  some  act  which,  in 
his  judgment,  his  own  interest  does  not  require.  Losses 
willfully  caused  by  another,  from  motives  of  malice,  to 


INTERFERENCE  WITH  CONTRACT  223 

one  who  seeks  to  exercise  and  enjoy  the  fruits  and  ad- 
vantages of  his  own  enterprise,  industry,  skill  and  credit, 
will  sustain  an  action.  It  is  clear  that  it  is  unlawful  and 
actionable  for  one  man,  from  unlawful  motives,  to  inter- 
fere with  another 's  trade  by  fraud  or  misrepresentation, 
or  by  molesting  his  customers  or  those  who  would  be  cus- 
tomers, or  by  preventing  others  from  working  for  him 
or  causing  them  to  leave  his  employ  by  fraud  or  mis- 
representation or  physical  or  moral  intimidation  or  per- 
suasion, with  an  intent  to  inflict  an  injury  which  causes 
loss. '  It  is  true  that  in  the  additional  opinion  delivered 
upon  the  petition  for  rehearing  Mr.  Justice  Phillips 
distinguishes  the  case  of  Allen  v.  Flood,  by  pointing  out 
the  fact  that  in  the  latter  case  there  was  no  contract 
the  breach  of  which  was  induced  by  the  defendant,  while 
in  the  Doremus  case  contracts  existed  in  which  the 
plaintiff  had  a  property  right  and  which  were  broken 
as  a  result  of  the  actions  of  the  defendants ;  but,  as  we 
have  already  seen,  the  clear  weight  of  authority  is  to 
the  effect  that  where  the  contract  is  one  of  employment, 
it  is  immaterial  whether  it  is  for  a  fixed  period  or  is 
one  which  is  terminable  by  either  party  at  will,  both 
parties  being  willing  and  desiring  to  continue  the  em- 
ployment under  that  contract  for  an  indefinite  period. 

"We  therefore  conclude,  both  upon  reason  and  au- 
thority, that  where  a  third  party  induces  an  employer 
to  discharge  his  employee,  who  is  working  under  a  con- 
tract terminable  at  will,  but  under  which  the  employment 
would  have  continued  indefinitely,  in  accordance  with  the 
desire  of  the  employer,  except  for  such  interference,  and 
where  the  only  motive  moving  the  third  party  is  a  desire 
to  injure  the  employee  and  to  benefit  himself  at  the 
expense  of  the  employee  by  compelling  the  latter  to  sur- 
render an  alleged  cause  of  action,  for  the  satisfaction  of 
which,  in  whole  or  in  part,  such  third  party  is  liable,  and 
where  such  right  of  action  does  not  depend  upon  and  is 
not  connected  with  the  continuance  of  such  employment, 
a  cause  of  action  arises  in  favor  of  the  employee  against 
the  third  party. 


224  CONTRACTS 

Question  137 :     (1.)   State  briefly  the  facts,  specific  question 
presented  and  the  Court's  decision  in  the  above  case. 
(2.)  What  was  the  case  of  Allen  v.  Flood? 
(3.)  What  constitutes  malice  in  its  legal  sense? 
(4.)  What  was  the  case  of  Doremus  v.  Hennessy? 


PART    IV 
DISCHARGE  OF  CONTRACTS 

Chapter  15.  Meaning  of  discharge. 

Chapter  16.  Discharge  by  performance,  breach,  tender, 
impossibility  and  payment. 

Chapter  17.  Discharge  by  agreement,  merger,  nova- 
tion, alteration  and  operation  of  law. 


CHAPTER  FIFTEEN 
MEANING  OF  DISCHARGE 
Sec.  106.    Discharge  Defined. 

(Note :  By  discharge  of  contract  we  mean  that  the  contract 
has  lost  its  force  as  such,  that  the  contractual  tie  between  the 
parties  has  been  removed.  We  know  from  a  former  part  of  our 
study  that  there  are  certain  causes  for  which  one  may  withdraw 
from  (avoid)  his  contract  and  in  that  way  remove  the  tie.  In 
those  cases  we  assume  that  the  tie  never  became  firmly  binding, 
that  on  account  of  fraud,  duress,  undue  influence  and  the  like, 
the  tie  was  faulty  and  might  be  undone  by  one  of  the  parties. 
We  now  assume  the  case  of  a  binding  contract  from  which 
neither  party  can  withdraw,  a  tie  that  he  cannot  undo  because 
of  a  fault  in  its  execution  but  by  performing  the  thing  for  which 
he  bound  himself  to  the  other,  or  by  showing  something  ac- 
cepted as  performance  or  in  the  eyes  of  the  law  equivalent 
thereto  or  an  excuse  therefor.  Assuming  then  that  the  par- 
ties are  bound  by  the  contractual  nexus,  how  may  the  relation- 
ship cease,  so  that  either  can  say  that,  though  he  was  under  con- 
tract, the  contract  exists  no  longer. 

The  various  ways  in  which  a  contractual  obligation  may  be 
discharged  are  indicated  at  the  beginning  of  this  chapter,  and 
are  illustrated  by  the  cases  following.) 

225 


CHAPTER   SIXTEEEN 

DISCHARGE  BY  PERFORMANCE,   BREACH, 
TENDER  AND  IMPOSSIBILITY 


§  107.  The  performance  must  be  ac-  §  111.  Breach  by  renunciation  prior 

cording  to  the  terms  of  the  to  time  of  performance. 

contract.  §  112.  Dependence  and  independence 

§  108.  Substantial  performance  suf-  of  covenants  and  conditions 

ficient.  as     affecting     performance 

§  109.  Acceptance  of  defective  per-  and  breach. 

formance  as  full  perform-  §  113.  Impossibility  of  performance 

ance.  as  discharge. 
§  110.  Performance  of  contracts  to 

be  performed  to  the  other's 

satisfaction. 


Sec.  107.    The  Performance  Must  Be  According  to  the 
Terms  of  the  Contract. 

Case  No.  138.  Bowes  et  al.  v.  Shand  et  al.,  2  App.  Cas. 
(Eng.)  455. 

Facts:  Shand  agrees  to  sell  B.  a  cargo  of  rice,  under 
a  contract,  which,  as  construed  by  the  Court,  required  S. 
to  put  the  rice  on  board  the  ''Rajah  of  Cochin' '  in 
Madras  in  March  and  April,  for  shipment  to  London. 
The  rice  was  put  on  board  in  February,  and  B.  refused 
to  accept  it.  This  was  an  action  for  damages  caused  by 
such  refusal. 

Point  Involved:  Whether  a  party  may,  without  re- 
spect to  its  importance,  insist  on  every  term  of  his  con- 
tract. 

Lord  Blackburn:     *     *     *    It  was  argued     *     *     * 

226 


PERFORMANCE,  BREACH,  ETC.  227 

that  it  was  enough  that  it  was  rice  and  that  it  is  imma- 
terial when  it  was  shipped.  *  *  *  If  you  contract  to 
sell  peas,  you  cannot  oblige  a  party  to  take  beans.  If 
the  description  of  the  article  tendered  is  different  in  any 
respect,  it  is  not  the  article  bargained  for  *  *  *.  I 
think  in  this  case  what  the  parties  bargained  for  was 
rice,  shipped  at  Madras,  or  the  coast  of  Madras.  Equally 
good  rice  might  have  been  shipped  a  little  to  the  north  or 
a  little  to  the  south  of  the  coast  of  Madras.  I  do  not 
quite  know  what  the  boundary  is,  and  probably  equally 
good  rice  might  have  been  shipped  in  February  as  was 
shipped  in  March,  or  equally  good  rice  might  have  been 
shipped  in  May  as  was  shipped  in  April,  and  I  dare  say 
equally  good  rice  might  have  been  put  on  board  another 
ship  as  that  which  was  put  on  board  the  "Rajah  of 
Cochin. ' '  But  the  parties  have  chosen,  for  reasons  best 
known  to  themselves,  to  say:  We  bargain  to  take  rice, 
shipped  in  this  particular  region,  at  that  particular  time, 
on  board  that  particular  ship,  and  before  the  defendants 
can  be  compelled  to  take  anything  in  fulfilment  of  that 
contract,  it  must  be  shown  not  merely  that  it  is  equally 
good,  but  that  it  is  the  same  article  that  they  have  bar- 
gained for — otherwise  they  are  not  bound  to  take  it. 

Question  138:    What  is  the  rule  stated  in  the  above  ease? 

Sec.  108.    Substantial  Performance  Sufficient. 

Case  No.  139.    Nolan  v.  Whitney,  88  N.  Y.  648. 

Facts:  Michael  Nolan  contracted  to  do  the  mason 
work  in  the  erection  of  two  buildings  in  Brooklyn,  for 
$11,700  to  be  paid  in  installments  as  the  work  progressed. 
The  last  installment  of  $2,700  was  payable  30  days  after 
completion  and  acceptance  of  the  work.  The  work  was 
to  be  performed  to  the  satisfaction  and  under  the  direc- 
tion of  an  architect,  whose  certificate  was  necessary  be- 
fore any  payment  could  be  claimed.  All  installments  were 
paid  except  the  last,  for  which  this  suit  was  brought.  The 


228  CONTRACTS 

defense  was  that  the  contract  was  not  performed  as 
agreed  and  that  the  architect's  certificate  had  not  been 
obtained.  The  referee  found  that  Nolan  substantially 
and  in  good  faith  complied  with  the  contract,  but  that 
there  were  trivial  defects  for  which  a  deduction  of 
$200.00  should  be  made.    Whitney  appeals. 

Point  Involved:  Whether  a  party  under  contract  to 
construct  a  building  according  to  plans  and  specifications 
involving  minute  details,  can  recover  on  the  contract  at 
the  contract  price,  with  a  deduction  for  error,  when  he 
has  not  performed  literally,  but  has  performed  sub- 
stantially and  in  good  faith. 

Earl,  J.  "It  is  a  general  rule  of  law  that  a  party 
must  perform  his  contract  before  he  can  claim  the  con- 
sideration due  him  upon  performance ;  but  the  perform- 
ance need  not  in  all  cases  be  literal  and  exact.  It  is  suffi- 
cient if  the  party  bound  to  perform,  acting  in  good  faith, 
and  intending  and  attempting  to  perform  his  contract, 
does  so  substantially,  and  then  he  may  recover  for  his 
work,  notwithstanding  slight  or  trivial  defects  in  per- 
formance, for  which  compensation  may  be  made  by  an 
allowance  to  the  other  party.  Whether  a  contract  has 
been  substantially  performed  is  a  question  of  fact  de- 
pending upon  all  the  circumstances  of  the  case  to  be 
determined  by  the  trial  court.  *  *  *  According  to 
the  authorities  cited,  under  an  allegation  of  substantial 
performance,  upon  the  facts  found  by  the  referee,  Nolan 
was  entitled  to  recover  unless  he  is  barred  because  he 
failed  to  get  the  architect's  certificate,  which  the  referee 
found  was  unreasonably  and  improperly  refused.  But 
when  he  had  substantially  performed  his  contract,  the 
architect  was  bound  to  give  him  the  certificate,  and  his 
refusal  to  give  it  was  unreasonable,  and  it  is  held  that  an 
unreasonable  refusal  on  the  part  of  the  architect  in  such 
a  case  to  give  the  certificate  dispenses  with  the  neces- 
sity.' ' 

Question  139:    What  is  the  doctrine  of  the  above  case? 


PERFORMANCE,  BREACH,  ETC.  229 

(Note:  The  doctrine  that  substantial  performance  made  in 
good  faith  is  sufficient  to  give  one  a  right  to  aver  a  sufficient 
performance  for  purposes  of  recovery  on  the  express  contract, 
less  a  sum  sufficient  to  correct  the  error,  has  usually  been  applied 
in  construction  contracts  or  contracts  of  great  detail,  where  the 
other  gets  a  benefit  consisting  in  substantially  what  he  bargained 
for,  and  which  cannot  be  taken  back  by  the  other  party  because 
of  the  nature  of  the  work  done.  This  doctrine  is  supported  in 
almost  all,  if  not  all,  the  states,  and  has  been  applied  to  all  sorts 
of  contracts  by  some  of  the  cases.  The  effect  of  holding  that 
the  builder  could  not  recover  on  the  contract  would  be,  either 
to  deny  him  any  remedy  whatever,  or  to  ignore  his  express  con- 
tract, on  the  ground  he  had  not  performed  it,  and  give  him  a 
remedy  as  on  an  implied  contract,  thus  depriving  him  of  the 
advantage  of  his  express  contract.  .  Under  this  rule  if  his  con- 
tract calls  for  $15,000,  he  can  sue  for  such  sum  from  which  the 
damages  caused  by  the  immaterial  departure  will  be  deducted, 
as,  say  $50.  Under  any  other  rule  he  could  not  sue  at  all,  or 
would  have  to  sue  as  on  an  implied  contract,  without  any  benefit 
from  his  express  contract.) 

Sec.  109.    Acceptance  of  Defective  Performance  as  Full 

Performance. 

Case  No.  140.    Smith  v.  Aiker,  102  N.  Y.  87. 

Facts:  Suit  brought  to  recover  for  balance  due  on  a 
building  contract.  This  contract  provided  for  the  produc- 
tion by  the  contractor  of  the  architect 's  certificate  before 
the  owner  was  obliged  to  accept  the  building  or  pay  the 
balance  due.  No  such  certificate  was  produced.  The 
evidence  showed,  however,  and  the  jury  found  that  the 
owner  accepted  the  work. 

Point  Involved:  Whether  a  provision  in  the  contract 
for  the  benefit  of  the  party  sued,  could  be  set  up  as  a 
defense  by  him,  where  the  evidence  discloses  that  he 
freely  accepts  the  performance  without  insisting  on  such 
benefit. 

Danforth,  J.:  "•  *  *  It  was  contended  on  the 
trial  *  *  *  that  a  recovery  could  not  be  had  without 
the   production   of  the   architect's   certificate.     *     *     * 


230  CONTRACTS 

(The  Court  below)  held,  and  so  instructed  the  jury,  that 
the  defendant  could  waive  the  stipulations  he  had  intro- 
duced into  the  contract  for  his  own  benefit  and  that  if 
he  had  accepted  the  house  as  under  a  complete  contract, 
the  plaintiff  would  be  entitled  to  recover,  although  no 
certificate  had  been  given,  and  even  if  the  architect  was 
not  satisfied.  That  was  the  principal  question  presented ; 
it  was,  we  think,  rightly  decided.  *  *  * 
" Judgment  for  plaintiff  affirmed." 

Question  140:    "What  does  the  above  case  decide? 

(Note:  See  Cases  on  Sales  for  a  development  of  the  subject 
of  acceptance  as  waiver  of  breach.  It  is  there  brought  out  that 
one  who  aeeepts  who  has  an  opportunity  to  reject,  may  thereby 
forego  his  right  to  afterwards  reject  and  yet  may  still  save  his 
right  to  have  damages  for  the  breach.  But  the  acceptance  may 
also  show  a  waiver  of  damages.    Circumstances  govern.) 

Case  No.  141.    Elliott  v.  Caldwell,  43  Minn.  357. 

Facts:  E.  and  others  agreed  to  build  for  C.  a  dwelling 
house.  C.  resists  payment  according  to  the  contract  be- 
cause the  house  as  built  was  materially  different  from  the 
one  called  for  by  the  plans.  The  evidence  was  taken  be- 
fore a  referee,  who  found  that  E.  and  the  others  material- 
ly deviated  from  the  contract  in  numerous  particulars 
both  in  work  and  materials. 

Point  Involved:  Whether  a  retention  of  a  benefit 
which  one  has  no  option  to  restore,  can  be  considered  as 
acceptance. 

Mitchell,  J.:  "*  *  *  They  are  not  mere  slight 
defects  or  omissions,  which  may  be  remedied  without 
difficulty  so  as  to  give  defendants  substantially  the  build- 
ing they  bargained  for,  but  they  are  of  a  substantial 
nature,  which  run  through  the  whole  work,  and  are  now 
incapable  of  correction  and  render  the  house  substantial- 
ly different  from  and  inferior  to  the  one  which  plaintiffs 
contracted  to  build.     *     *     *    Neither  were  they  the  re- 


PERFORMANCE,  BREACH,  ETC.  231 

suit  of  mistake  or  oversight,  but  intentional  and  even 
fraudulent.     *     *     * 

a*  #  *  jn  ftie  case  of  a  building  on  land  under  a 
contract  which  the  builder  fails  to  complete,  or  which  he 
completes  in  a  manner  not  conforming  to  the  contract 
*  *  the  mere  fact  of  the  building  remaining  on  the 
land,  and  that  the  owner  resumed  possession  and  enjoys 
the  fruits  of  the  labor,  is  not  such  an  acceptance  as  alone 
will  imply  a  promise  to  pay  for  it ;  for  the  possession  of 
the  land  necessarily  involves  possession  of  the  buildings 
in  their  existing  state,  and  the  owner  has  no  option  in 
rejecting  them." 

Question  141:  What  are  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case? 

(Note:  For  right  to  recover  in  such  a  case  as  on  an  implied 
contract  see  Sec.  121.) 

Sec.  110.    Performance  of  Contracts  by  Their  Terms  to 
Be  Performed  to  the  Others'  Satisfaction. 

Case  No.  142.    Brown  v.  Foster,  113  Mass.  136. 

Facts:  Suit  to  recover  the  price  of  a  suit  of  clothes 
which  the  tailor  agreed  to  make  up  to  the  customer 's  sat- 
isfaction.    Defense,  that  he  was  not  satisfied. 

Point  Involved:  Whether  one  who  has  contracted  that 
another  shall  make  him  a  suit  of  clothes  ' '  to  his  satisfac- 
tion" may  reject  the  clothes  with  no  other  reason  than 
that  he  is  not  satisfied. 

Devens,  J. :  "  There  was  evidence  at  the  trial  to  show 
that  the  contract  between  the  parties  was  an  express  con- 
tract and  by  the  terms  of  it  the  plaintiff  agreed  to  make 
and  deliver  to  the  defendant,  upon  a  certain  day  a  suit  of 
clothes  which  were  to  be  made  to  the  satisfaction  of  the 
defendant.  The  clothes  were  made  and  delivered  upon 
the  day  specified,  but  were  not  to  the  satisfaction  of  the 
defendant,  who  declined  to  accept,  and  promptly  returned 


232  CONTRACTS 

the  same.  If  the  plaintiff  saw  fit  to  do  work  upon  ar- 
ticles for  the  defendant  and  to  furnish  materials  there- 
for, contracting  that  the  articles  when  manufactured 
should  be  satisfactory  to  the  defendant,  he  can  recover 
only  upon  the  contract  as  it  was  made;  and  even  if  the 
articles  furnished  by  him  were  such  that  the  other  party 
ought  to  have  been  satisfied  with  them,  it  was  yet  within 
the  power  of  the  opposite  party  to  reject  them  as  unsat- 
isfactory. It  is  not  for  any  one  else  to  decide  whether  a 
refusal  to  accept  is  or  is  not  reasonable,  when  the  con- 
tract permits  the  defendant  to  decide  himself  whether  the 
articles  furnished  are  to  his  satisfaction.  Although  the 
compensation  of  the  plaintiff  for  valuable  services  and 
materials  may  thus  be  dependent  upon  the  caprice  of 
another,  who  unreasonably  refuses  to  accept  the  articles 
manufactured,  yet  he  cannot  be  relieved  from  the  con- 
tract into  which  he  has  voluntarily  entered.    *     *     •" 


Question  142:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case  ? 

(2.)  Suppose  the  customer  had  accepted  the  clothes,  protest- 
ing that  he  was  not  satisfied,  could  he  have  made  this  defense  ? 


Case  No.  143.  Duplex  Safety  Boiler  Co.  v.  Garden,  101 
N.  Y.  387. 

Facts:  Contract  to  alter  boilers  for  G.,  payment  to  be 
made  only  when  G.  was  "satisfied  that  the  boilers  as 
changed  were  a  success. ' '  Tne  work  was  done  in  a  work- 
manlike manner;  but  defendant,  G.,  claimed  he  was  not 
satisfied. 

Point  Involved:  Whether  one  who  has  contracted  that 
another  shall  do  work  of  a  mechanical  character  to  his 
satisfaction,  can  aver  in  full  defense  for  not  accepting  the 
work  simply  that  he  is  not  satisfied. 


Danforth,  J.:    "•    •*     *     In  the  case  before  us  the 
work  required  was  specified,  and  was  completed ; 


#    *    * 


PERFORMANCE,  BREACH,  ETC.  233 

If  there  was  full  performance  on  the  plaintiff's  part, 
nothing  more  could  be  required,  and  the  time  for  pay- 
ment had  arrived;  for  *  *  *  'that  which  the  law  will 
say  a  contracting  party  ought  in  reason  to  be  satisfied 
with,  that  the  law  will  say  he  is  satisfied  with. ' 

"Another  rule  has  prevailed  where  the  object  of  the 
contract  was  to  gratify  taste,  serve  personal  convenience, 
or  satisfy  individual  preference.  *  *  *  A  different 
case  is  before  us." 

Question  143:  (1.)  In  what  respect  does  this  case  differ  from 
the  one  above  ?    Are  they  opposed  in  principle  ? 

(2.)  Apply  the  principles  of  the  above  cases  to  the  following 
contracts  to  be  performed  to  the  other's  satisfaction: 

(a)  Laying  a  roof:  (McNeil  &  Armstrong,  81  Fed.  943). 

(b)  Painting  a  portrait:  (Pennington  v.  Howland,  21  R. 
I.  65). 

(c)  Making  a  statue:  (Zaleski  v.  Clarke,  44  Conn.  218). 

(d)  Grading  a  dock:  (Keeler  v.  Clifford,  165  111.  544). 

(Note :  These  cases  must  not  be  confused  with  cases  in  which 
articles  are  sent  for  trial  to  be  accepted  if  satisfactory  or  if  the 
recipient  desires  to  keep  them.  In  such  a  case,  of  course,  there 
is  an  absolute  right  of  rejection.) 

Case  No.  144.    Kendall  v.  West,  196  HI.  223. 

Facts:  This  was  a  suit  brought  by  Ezra  Kendall  to 
recover  $10,000  for  breach  of  a  contract  of  employment, 
whereby  West  engaged  Kendall  to  perform  for  West  at 
such  places  and  theatres  in  the  United  States  and  Can- 
ada as  appellee  might  require,  for  the  seasons  of  1898, 
and  1899,  Kendall  to  "render  satisfactory  services." 
The  defendant  was  not  satisfied  with  Kendall's  services 
and  requested  Kendall  to  shorten  his  performance  and 
try  his  part  in  black  face.  Kendall  refused  and  West 
discharged  him.    He  brought  suit. 

Point  Involved:  Whether  under  a  contract  for  per- 
sonal services,  so  long  as  such  services  are  satisfactory, 
the  employer  is  the  sole  judge  as  to  the  satisfactoriness 
of  such  services. 


234  CONTRACTS 

Mr.  Justice  Hand:  "*  *  *  The  contract  of  em- 
ployment provided  that  appellant  should  render  'satis- 
factory services, '  for  which  he  was  to  receive  the  sum  of 
$250  per  week.  It  contained  no  provision  in  any  manner 
limiting  the  appellee  in  the  exercise  of  his  judgment  as  to 
what  should  be  deemed  '  satisfactory  services. '  The  ap- 
pellant did  not  undertake  to  render  services  which  should 
satisfy  a  court  or  jury,  but  undertook  to  satisfy  the  taste, 
fancy,  interest  and  judgment  of  appellee.  It  was  the 
appellee  who  was  to  be  satisfied,  and  if  dissatisfied  he  had 
the  right  to  discharge  the  appellant  at  any  time  for  any 
reason,  of  which  he  was  the  sole  judge.  (Goodrich  v. 
Van  Nortwick,  43  111.  445 ;  Crawford  v.  Mail  and  Express 
Publishing  Co.  57  N.  E.  Rep.  616.)  In  the  Goodrich  case 
the  plaintiff  purchased  and  paid  for  a  fanning  mill,  with 
the  agreement  that  if  it  did  not  suit  him  and  answer  his 
purpose  he  might  return  it  within  thirty  days.  It  was 
held  that  the  mill  must  answer  both  requirements,  and 
if  it  did  not  suit  the  purchaser  he  had  the  right  to  return 
it  and  recover  back  the  purchase  price,  and  that  he  was 
the  sole  judge  of  whether  or  not  he  was  suited.  In  the 
Crawford  case  the  plaintiff  made  a  contract  to  write  for 
the  defendant's  newspaper  for  two  years,  provided  his 
services  should  be  satisfactory  to  the  publisher  and  it  was 
held  that  the  defendant  had  the  right  to  discharge  the 
plaintiff  at  any  time  if  his  services  were  unsatisfactory, 
of  which  fact  the  defendant  was  the  sole  judge. ' ' 

Question  144:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 

Sec.  111.    Breach  by  Renunciation  Prior  to  Performance. 

Case  No.  145.    Hochster  v.  De  La  Tour,  2  El.  &  Bl.  678. 

Facts:  Plaintiff,  in  April,  1852,  agreed  to  serve  de- 
fendant, as  courier,  for  three  months  from  June  1,  1852, 
on  certain  terms.  May  11,  1852,  defendant  wrote  plain- 
tiff he  had  changed  his  mind  and  would  not  employ 
plaintiff.     May  22nd  plaintiff  brought  suit.    Defendant 


PERFORMANCE,  BREACH,  ETC.  235 

claimed  that  there  could  be  no  breach  until  time  of  per- 
formance, and  that  until  that  time,  he  should  have  oppor- 
tunity to  change  his  mind. 

Point  Involved:  Whether  an  executory  contract  can 
be  treated  by  the  promisee  as  broken  by  the  promisor 
before  the  time  for  performance. 

Lord  Campbell,  C.  J. :  "*  *  *  But  it  is  surely 
much  more  rational  and  more  to  the  benefit  of  both  par- 
ties that  after  the  renunciation  of  the  agreement  by  the 
defendant  the  plaintiff  should  be  at  liberty  to  consider 
himself  absolved  from  any  future  performance  of  it,  re- 
taining his  right  to  sue  for  any  damage  he  has  suffered 
from  the  breach  of  it.  Thus,  instead  of  laying  out  money 
in  preparations  which  must  be  useless  he  is  at  liberty  to 
seek  service  under  another  employer,  which  would  go  in 
mitigation  of  the  damages  to  which  he  would  otherwise 
be  entitled  for  a  breach  of  the  contract.  It  seems  strange 
that  the  defendant,  after  renouncing  the  contract  and 
absolutely  declaring  that  he  will  never  act  on  it,  should  be 
permitted  to  object  that  faith  is  given  to  his  assertion, 
and  that  an  opportunity  is  not  left  to  him  of  changing  his 
mind.     *     *     *" 


Question  145:    What  is  the  rule  of  law  announced  in  this 
case? 


Case  No.  146.    Kadish  v.  Young,  108  111.  170. 

Facts:  On  December  15,  1880,  Y.  agreed  to  sell  to  K. 
100,000  bushels  of  No.  2  barley  at  $1.20  per  bushel,  to  be 
delivered  in  January,  1881.  On  December  16,  1880,  K. 
gave  notice  that  he  would  not  receive  the  barley.  Y. 
nevertheless  treated  the  contract  as  still  subsisting  and 
on  January  12,  1881,  tendered  the  warehouse  receips  to 
K.,  who  refused  to  accept.  Thereupon  Y.  sold  the  barley 
on  the  market,  at  less  than  $1.20  per  bushel,  and  sued  K. 
for  the  loss.  K.  contends  that  Y.  should  have  acted  on 
his  renunciation  and  attempted  to  sell  the  barley  in  De- 


236  CONTRACTS 

cember,  when  barley  was  higher,  and  thus  have  dimin- 
ished the  damages  in  whole  or  part. 

Point  Involved:  The  same  question  as  above.  With 
the  additional  point  whether  the  other  party  must  act 
upon  the  attempted  renunciation  or  may  hold  the  con- 
tract open ;  and  the  consequences  of  so  doing. 

Mr.  Justice  Scholfield:  "But  the  well  settled  doc- 
trine of  the  English  Courts  is,  that  a  buyer  cannot  thus 
create  a  breach  of  contract  upon  which  the  seller  is  bound 
to  act.     *     *     * 

"The  question  came  before  this  Court  in  Fox  v.  Kitton, 
19  111.  519,  whether,  where  a  party  agrees  to  do  an  act  at 
a  future  time,  and  before  the  day  arrives  he  declares  he 
will  not  keep  his  contract,  the  other  party  may  act  on 
such  declaration  and  bring  an  action  before  the  day  ar- 
rives ;  and  it  was  held  *  *  *  that  he  may.  *  *  * 
(Quoting  from  an  English  case)  'The  notice  (that  he 
will  not  receive  the  wheat)  amounts  to  nothing  until  the 
time  when  the  buyer  ought  to  receive  the  goods,  unless 
the  seller  acts  on  it  in  the  meantime,  and  rescinds  the 
contract/  *  *  *  'He  keeps  the  contract  alive  for 
the  benefit  of  the  other  party  as  well  as  his  own,  *  *  * 
and  enables  the  other  party  not  only  to  complete  the  con- 
tract, if  so  advised,  notwithstanding  his  previous  re- 
pudiation of  it,  but  also  to  take  advantage  of  any  super- 
vening circumstances,  which  would  justify  him  in  declin- 
ing to  complete  it. ' 

<<#  *  #  j£  appellees  (Y.)  had  then  the  barley  on 
hand  and  had  acted  on  appellant's  notice,  and  accepted 
and  treated  the  contract  as  then  broken,  it  would,  doubt- 
less, then  have  been  their  duty  to  have  resold  the  barley 
upon  the  market,  precisely  as  they  did  in  January,  and 
have  given  the  appellants  credit  for  the  proceeds  of  the 
sale.     *     *     *" 

Question  146:  What  does  the  Court  decide  in  this  case  with 
reference  to  the  necessity  of  acting  upon  an  anticipatory  breach, 
and  the  consequences  ensuing  upon  either  a  failure  to  so  act,  or 
such  action? 


PERFORMANCE,  BREACH,  ETC.  237 

(Note:  This  right  to  accept  or  reject  a  prior  renunciation 
gives  no  right  to  the  party  not  in  default  to  go  on  and  perform. 
It  simply  gives  a  right  to  keep  the  contract  open  till  time  of  per- 
formance. ) 

Sec.  112.    Dependence  and  Independence  of  Conditions 
and  Covenants  as  Affecting  Performance  and  Breach. 

Case  No.  147.  Kingston  v.  Preston,  as  cited  in  argu- 
ment in  2  Doug.  689. 

1 '  It  was  an  action  of  debt,  for  non-performance  of  cove- 
nants contained  in  certain  articles  of  agreement  between 
the  plaintiff  and  the  defendant.  The  declaration  stated : 
That,  by  articles  made  the  24th  of  March,  1770,  the  plain- 
tiff, for  the  considerations  thereinafter  mentioned,  cove- 
nanted, with  the  defendant,  to  serve  him  for  one  year  and 
a  quarter  next  ensuing,  as  a  covenant-servant,  in  his 
trade  of  a  silk-mercer,  at  £200  a  year,  and  in  considera- 
tion of  the  premises,  the  defendant  covenanted,  that  at 
the  end  of  the  year  and  a  quarter,  he  would  give  up  his 
business  of  a  mercer  to  the  plaintiff,  and  a  nephew  of  the 
defendant,  or  some  other  person  to  be  nominated  by  the 
defendant,  and  give  up  to  them  his  stock  in  trade,  at  a 
fair  valuation ;  and  that,  between  the  young  traders,  deeds 
of  partnership  should  be  executed  for  14  years,  and, 
from  and  immediately  after  the  execution  of  the  said 
deeds,  the  defendant  would  permit  the  said  young  traders 
to  carry  on  the  said  business  in  the  defendant's  house. 
Then  the  declaration  stated  a  covenant  by  the  plaintiff, 
that  he  would  accept  the  business  and  stock  in  trade,  at 
a  fair  valuation,  with  the  defendant's  nephew,  or  such 
other  person,  etc.,  and  execute  such  deeds  of  partnership, 
and,  further,  that  the  plaintiff  should,  and  would,  at,  and 
before,  the  sealing  and  delivery  of  the  deeds,  cause  and 
procure  good  and  sufficient  security  to  be  given  to  the 
defendant,  to  be  approved  of  by  the  defendant,  for  the 
payment  of  £250  monthly,  to  the  defendant,  in  lieu  of  a 
moiety  of  the  monthly  produce  of  the  stock  in  trade,  until 
the  value  of  the  stock  should  be  reduced  to  £4000.    Then 


238  CONTRACTS 

the  plaintiff  averred,  that  he  had  performed,  and  been 
ready  to  perform,  his  covenants,  and  assigned  for  breach 
on  the  part  of  the  defendant,  that  he  had  refused  to  sur- 
render and  give  up  his  business,  at  the  end  of  the  said 
year  and  a  quarter.  The  defendant  pleaded,  1.  That  the 
plaintiff  did  not  offer  sufficient  security ;  and  2.  That  he 
did  not  give  sufficient  security  for  the  payment  of  the 
£250,  etc.  And  the  plaintiff  demurred  generally  to  both 
pleas.  On  the  part  of  the  plaintiff,  the  case  was  argued 
by  Mr.  Butler,  who  contended,  that  the  covenants  were 
mutual  and  independent,  and,  therefore,  a  plea  of  the 
breach  of  one  of  the  covenants  to  be  performed  by  the 
plaintiff  was  no  bar  to  an  action  for  a  breach  by  the 
defendant  of  one  of  which  he  had  bound  himself  to  per- 
form, but  that  the  defendant  might  have  his  remedy  for 
the  breach  of  the  plaintiff,  in  a  separate  action.  On  the 
other  side,  Mr.  Grose  insisted,  that  the  covenants  were 
dependent  in  their  nature,  and,  therefore,  performance 
must  be  alleged :  The  security  to  be  given  for  the  money, 
was  manifestly  the  chief  object  of  the  transaction,  and  it 
would  be  highly  unreasonable  to  construe  the  agreement, 
so  as  to  oblige  the  defendant  to  give  up  a  beneficial  busi- 
ness, and  valuable  stock  in  trade,  and  trust  to  the  plain- 
tiff's personal  security  (who  might  and,  indeed,  was  ad- 
mitted to  be  worth  nothing),  for  the  performance  of  his 
part.  In  delivering  the  judgment  of  the  court,  Lord 
Mansfield  expressed  himself  to  the  following  effect: 
There  are  three  kinds  of  covenants :  1.  Such  as  are  called 
mutual  and  independent,  where  either  party  may  recover 
damages  from  the  other,  for  the  injury  he  may  have 
received  by  a  breach  of  the  covenants  in  his  favor,  and 
where  it  is  no  excuse  for  the  defendant,  to  allege  a  breach 
of  the  covenants  on  the  part  of  the  plaintiff.  2.  There 
are  covenants  which  are  conditions  and  dependent,  in 
which  the  performance  of  one  depends  on  the  prior  per- 
formance of  another,  and,  therefore,  till  this  prior  condi- 
tion is  performed,  the  other  party  is  not  liable  to  an 
action  on  his  covenant.  3.  There  is  also  a  third  sort  of 
covenants,  which  are  mutual  conditions  to  be  performed 


PERFORMANCE,  BREACH,  ETC.  239 

at  the  same  time ;  and,  in  these,  if  one  party  was  ready, 
and  offered,  to  perform  his  part,  and  the  other  neglected, 
or  refused,  to  perform  his,  he  who  was  ready,  and  offered, 
has  fulfilled  his  engagement,  and  may  maintain  an  action 
for  the  default  of  the  other ;  though  it  is  not  certain  that 
either  is  obliged  to  do  the  first  act.  His  Lordship  then 
proceed  to  say,  that  the  dependence,  or  independence,  of 
covenants,  was  to  be  collected  from  the  evident  sense  and 
meaning  of  the  parties,  and,  that,  however  transposed 
they  might  be  in  the  deed,  their  precedency  must  depend 
on  the  order  of  time  in  which  the  intent  of  the  transaction 
requires  their  performance.  That,  in  the  case  before  the 
court,  it  would  be  the  greatest  injustice  if  the  plaintiff 
should  prevail :  The  essence  of  the  agreement  was,  that 
the  defendant  should  not  trust  to  the  personal  security  of 
the  plaintiff,  but,  before  he  delivered  up  his  stock  and 
business,  should  have  good  security  for  the  payment  of 
the  money.  The  giving  such  security,  therefore,  must 
necessarily  be  a  condition  precedent.  Judgment  was  ac- 
cordingly given  for  the  defendant,  because  the  part  to 
be  performed  by  the  plaintiff  was  clearly  a  condition 
precedent. ' ' 

Question  147:  What  three  sorts  of  covenants  are  there  as 
described  by  the  above  case?  What  was  the  covenant  and  its 
nature  in  the  above  case? 

Sec.  113.    Impossibility  of  Performance  as  Discharge. 

Case  No.  148.    Walker  v.  Tucker,  70  HI.  526. 

Facts:  Contract  to  work  a  certain  coal  mine  during 
the  continuance  of  a  lease,  in  a  good  and  workmanlike 
manner.  Breach  alleged  and  suit  brought  thereon.  Plea 
by  the  defendant  to  the  effect  that  the  working  of  the 
mine  had  become  a  hardship  and  unprofitable. 

Point  Involved:  Whether  hardship  and  burden  caused 
by  performing  a  contract  is  an  excuse  for  its  non-per- 
formance?   What  consitutes  impossibility? 


240  CONTRACTS 

Mr.  Justice  Scholfield  :  *  *  *  *  *  The  plea  alleges 
that  'on  the  said  15th  day  of  September,  1871,  the  mines 
became  and  were  wholly  exhausted  and  incapable  of 
yielding,  when  worked  in  a  good  and  workmanlike  man- 
ner, and  with  reasonable  skill,  care,  diligence  and  energy, 
sufficient  coal  for  working  said  mines,'  etc.  //  the  plea 
had  stopped  short,  after  alleging  that  the  mines  became 
and  were  wholly  exhausted,  it  would  have  been  good,  but 
the  subsequent  qualification  shows  that  these  words  do 
not  mean  exhausted  of  coal,  but  only  exhausted  of  such 
coal  as  was  capable  of  yielding,  'when  worked  in  a  good 
and  workmanlike  manner,  and  with  reasonable  skill,  care, 
diligence,  and  energy,  sufficient  coal  for  working  said 
mines.'  This  might  be,  and  yet  the  most  valuable  por- 
tion of  the  mine  remain  untouched.  *  *  *  Courts 
must  enforce  contracts  as  the  parties  make  them.  *  *  * 
There  is  nothing  in  this  instrument  which  authorizes  a 
suspension  or  abandonment  of  mining  because  it  has  be- 
come unprofitable.     *     *     *" 

Question  148:  What  was  the  defense  to  this  suit  ?  Did  it  pre- 
vail ?    What  defense  did  the  Court  say  would  have  prevailed  ? 


Case  No.  149.    Yerrington  v.  Green,  7  R.  I.  589. 

Facts:  Contract  to  employ  plaintiff  as  clerk  and  agent 
of  business  in  New  York  and  Philadelphia  for  a  certain 
period.  Death  of  the  employer.  Suit  by  the  employee 
against  the  administrators  of  the  employer. 

Point  Involved:  Whether  the  death  of  the  employer 
discharges  the  contract  of  employment. 

By  Court,  Ames,  C.  J. :  It  is  in  general  true  that  death 
does  not  absolve  a  man  from  his  contracts ;  but  that  they 
must  be  performed  by  his  personal  representatives,  or 
their  non-performance  compensated  out  of  his  estate. 
An  exception  to  this  rule,  equally  well  established  at  both 
the  civil  and  common  law  is,  that  in  contracts  in  which 
performance  depends  upon  the  continued  existence  of  a 


PERFORMANCE,  BREACH,  ETC.  241 

certain  person  or  thing,  a  condition  is  implied  that  the 
impossibility  of  performance  arising  from  the  perishing 
of  the  person  or  thing  shall  excuse  the  performance.  The 
implication  arises  in  spite  of  the  unqualified  character 
of  the  promissory  words,  because,  from  the  nature  of 
the  contract,  it  is  apparent  that  the  parties  contracted 
upon  the  basis  of  the  continued  existence  of  the  partic- 
ular person  or  chattel.  The  books  afford  many  illustra- 
tions of  this  reasonable  mode  of  construing  contracts, 
de  certo  corpore,  as  the  civil  law  designation  of  them  is, 
in  furtherance  of  the  presumed  and  probable  intent  of 
the  parties.  The  most  obvious  cases  are  the  death  of  a 
party  to  a  contract  of  marriage  before  the  time  fixed 
by  it  for  the  marriage ;  the  death  of  an  author  or  artist 
before  the  time  contracted  for  the  finishing  and  delivery 
of  the  book,  picture,  statue,  or  other  work  of  art;  the 
death  of  a  certain  slave  promised  to  be  delivered,  or  of 
a  horse  promised  to  be  redelivered,  before  the  day  set 
for  delivery  or  redelivery;  and  the  death  of  a  master 
or  apprentice  before  the  expiration  of  the  term  of  service 
limited  in  the  indentures.  The  bodily  disability  from 
supervening  illness,  as  of  an  artist,  from  blindness,  to 
paint  the  picture  contracted  for,  or  of  a  scholar  to  re- 
ceive the  instruction  his  father  had  stipulated  should 
be  received  and  paid  for,  has  been  held,  for  the  like 
reason,  to  excuse  each  from  the  performance  of  his 
contract:  Hall  v.  Wright,  1  El.  B.  &  E. ;  Stewart  v.  Lor- 
ing,  5  Allen,  306.  The  cases  in  support  of  these,  and  other 
illustrations  of  the  exception  to  the  general  rule,  are  set 
down  in  the  defendant's  brief,  and  it  is  unnecessary  to 
repeat  them.  Both  at  the  civil  and  the  common  law,  it  is 
necessary  that  the  party  who  would  avail  himself  of  this 
excuse  for  non-performance  of  the  contract  should  be 
without  fault  in  the  matter  upon  which  he  relies  as  an 
excuse.  The  latest  and  most  instructive  case  upon  this 
subject,  so  far  as  the  discussion  of  the  principle  of  de- 
cision is  concerned,  is  that  of  Taylor  v.  Caldwell,  decided 
by  the  queen's  bench  in  May  last,  8  L.  T.,  N.  S.,  356.  In 
that  case  it  was  held  that  the  parties  were  discharged 


242  CONTRACTS 

from  a  contract  to  let  a  music  hall  for  four  specified 
days  for  a  series  of  concerts,  by  the  accidental  destruc- 
tion of  the  hall  by  fire  before  the  first  day  arrived.  The 
full  and  lucid  exposition  by  Mr.  Justice  Blackburn,  who 
delivered  the  opinion  of  the  court,  of  the  prior  cases, 
and  of  the  principle  upon  which  they  had  been  decided, 
leaves  nothing  further  to  be  desired  upon  this  subject. 

Does  the  case  at  bar  fall  within  the  general  rule  or 
within  the  exception  we  have  been  considering?  This 
must  depend  upon  the  nature  of  the  contract — whether 
one  requiring  the  continuing  existence  of  the  employer, 
Keach,  for  performance  on  his  part,  or  one  which  could, 
according  to  its  spirit  and  meaning,  be  performed  by 
the  defendants,  his  administrators.  The  contract  was 
to  employ  the  plaintiff  as  clerk  and  agent  of  the  intes- 
tate in  his  business  in  New  York  and  Philadelphia;  and 
it  seems  to  us  undoubted  that  the  continued  existence 
of  both  parties  to  the  contract  proceeded,  and  if  called  to 
their  attention  at  the  time  of  contract,  must  have  been 
contemplated  as  such  by  them.  The  death  of  the  plain- 
tiff within  the  three  years  would  certainly  have  been  a 
legal  excuse  from  the  further  performance  of  his  con- 
tract; since  it  was  an  employment  of  confidence  and 
skill,  the  duties  of  which,  in  the  spirit  of  the  contract, 
could  be  fulfilled  by  him  alone.  If  this  be  the  law  in 
application  to  a  covenant  for  ordinary  service  (Shep. 
Touch.  180),  how  much  more  in  application  to  a  con- 
tract for  service  of  such  confidence  and  skill  as  that  of 
a  clerk  and  agent  for  sale.  On  the  other  hand,  this  em- 
ployment could  continue  no  longer  than  the  business  in 
which  the  employer  was  engaged  and  the  plaintiff  re- 
tained. The  intestate,  when  living,  could  by  the  con- 
tract have  required  the  services  of  the  plaintiff  in  no 
other  business  than  that  in  which  he  had  engaged  him, 
and  with  no  other  person  than  himself.  It  would  seem, 
then,  necessarily  to  follow,  that  when  the  death  of  the 
employer  put  a  stop  to  this  business,  and  left  no  legal 
right  over  it  in  the  administrators,  except  to  close  it  up 
with  the  least  loss  to  the  estate  of  their  decedent,  they 


PERFORMANCE,  BREACH,  ETC.  243 

were,  by  the  contract,  bound  no  longer  to  employ  the 
plaintiff,  any  more  than  he  to  serve  them.  The  act  of 
God  had  taken  away  the  master  and  principal — the  law 
had  revoked  his  agency,  and  stopped  the  business  to 
which  alone  his  contract  bound  him;  and  if  he  would 
serve  the  administrators  in  winding  up  the  estate,  it 
must  be  under  a  new  contract  with  them,  and  under  re- 
newed powers  granted  by  them.  Any  other  result  than 
that  this  contract  of  service  was  upon  the  implied  con- 
dition that  the  employer,  as  well  as  the  employed,  was 
to  continue  to  live  during  the  stipulated  term  of  em- 
ployment, would  involve  us  in  the  strange  conclusion 
that  the  administrators  might  go  on  with  the  business 
of  their  intestate,  in  which  the  plaintiff  must  continue 
with  powers  unrevoked  by  the  death  of  his  principal,  or 
that  he,  with  new  powers  from  them,  was  bound  by  the 
contract  to  serve  them  as  new  masters,  and  in  a  different 
service,  and  that  they  were  bound  to  grant  him  such 
powers,  and  employ  him  for  the  stipulated  time  in  such 
service.  The  novelty  of  such  a  claim,  and  the  contradic- 
tion of  well-settled  principles  necessary  to  maintain  it, 
justify  the  ruling  of  the  judge  who  tried  the  cause ;  and 
this  motion  must  be  dismissed  with  costs,  and  judgment 
entered  upon  the  verdict. 

Question  149:  What  was  the  contract  in  question,  and  why 
did  the  death  of  one  party  thereto  discharge  the  obligation  to 
perform  ?  Generally  speaking,  what  contracts  are  discharged  by 
death? 

Case  No.  150.  Booth  v.  Spuyten  Duyvil  Rolling  Mill 
Co.,  60  New  York,  487. 

Facts:  Plaintiffs,  having  contracted  to  sell  and  deliver 
to  N.  Y.  C.  R.  R.  Co.  400  tons  of  rails  with  steel  caps, 
contracted  with  defendant  December  27,  1867,  to  furnish 
the  caps,  to  be  delivered  April  1,  1868.  On  March  10, 
1868,  the  defendant's  mill  burned  and  he  was  unable  to 
furnish  the  caps.  Plaintiff  sues  for  breach  and  defend- 
ant claims  impossibility  of  performance. 


244  CONTRACTS 

Point  Involved:  Whether  the  destruction  of  shop, 
machinery  or  tools  in  or  by  which  a  contracting  party 
expects  to  execute  his  contract,  which  are  not  specified 
by  the  contract  as  necessary  for  its  performance,  ex- 
cuses performance. 

Chubch,  C.  J.  "  *  *  *  But  the  case  is  not  within 
the  principle  decided  in  Dexter  v.  Norton  (47  N.  Y.  62), 
and  the  authorities  upon  which  it  was  based.  That  prin- 
ciple applies  when  it  is  apparent  that  the  parties  con- 
templated the  continued  existence  of  a  particular  person 
or  thing  which  is  the  subject  of  the  contract,  as  in  the 
case  of  a  Musical  Hall  destroyed  by  fire  (3  Best  &  S.  826) ; 
in  the  case  of  an  apprentice  who  became  permanently  ill 
(4  C.  P.  1  [L.  R.] ;  and  of  a  woman  who,  from  illness,  was 
unable  to  perform  as  a  pianist  (6  Ex.  269  [L.  R.]).  In 
these  and  analogous  cases  a  condition  is  implied  that  the 
person  or  thing  shall  continue  to  exist.  In  Dexter  v.  Nor- 
ton (supra),  this  principle  was  applied  to  relieve  a  party 
from  damages  for  a  failure  to  deliver  property  which  was 
burned  without  his  fault,  but  it  has  no  application  to  a 
case  of  this  character.  There  was  no  physical  or  natural 
impossibility  inherent  in  the  nature  of  the  thing  to  be 
performed,  upon  which  a  condition  that  the  mill  should 
continue  can  be  predicated.  The  article  was  to  be  manu- 
factured and  delivered  and  whether  by  that  particular 

machinery  or  in  that  mill  would  not  be  deemed  material. 

#     #     #>j 

Question  150:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  A  makes  two  contracts  with  B:  (a)  to  sell  B  A's  horse 
Dick;  (b)  to  sell  B  20  horses  of  a  particular  description.  Before 
the  time  for  the  performance  arrives  a  contagious  disease  breaks 
out  among  A's  horses  and  kills  the  horse  Dick  and  a  herd  of 
40  horses  out  of  which  A  expected  to  select  the  20  other  horses. 
A  is  unable  to  buy  any  horses  corresponding  to  the  description 
of  the  20  horses.  B  sues  A  on  both  contracts.  A  pleads  the 
facts  as  stated.  Is  he  excused?  (Ontario  Ass 'n  v.  Packing  Co., 
134  Cal.  21.) 


PERFORMANCE,  BREACH,  ETC.  245 

(Note:  Mere  hardship  is  never  impossibility.  [Walker  v. 
Tucker,  supra]  ;  nor  impossibilities  caused  by  climatic  conditions 
that  should  have  been  foreseen  and  stipulated  against,  as  the 
freezing  of  a  river  in  midwinter.  [Engster  v.  West,  35  La. 
Ann.  119.] 

Impossibility  is  not  a  good  defense,  except  where  from  the 
nature  of  the  contract  it  must  have  been  contemplated  by  both 
parties  that  the  contract  was  to  remain  binding  only  in  case 
performance  were  possible.  Thus,  strikes,  inability  to  get  labor- 
ers or  building  material,  inability  to  accomplish  results  agreed 
upon  because  of  incapacity,  etc.,  are  not  causes  of  discharge, 
unless  they  are  provided  for  in  the  contract) 

Case  No.  151.    Kelley  v.  Riley,  106  Mass.  339. 

Facts:  Suit  for  breach  of  promise  of  marriage.  De- 
fence that  defendant  was  married  when  he  made  the 
promise.     The  plaintiff  was  innocent  of  the  fact. 

Point  Involved:  Whether  impossibility  known  to  one 
party  but  not  known  to  the  other  discharges  the  contract. 

Colt,  C.  J. :  The  defendant  is  not  permitted  to  escape 
responsibility  on  the  ground  of  his  present  legal  inability 
to  perform  a  promise  of  marriage  to  an  innocent  party. 
The  damages  to  the  plaintiff  are  certainly  not  diminished 
by  the  consideration  that  the  promise  was  made  under 
such  circumstances.  The  strict  rule  that  a  consideration 
to  support  a  promise  is  insufficient,  if  its  performance  is 
utterly  and  naturally  impossible,  is  met  by  the  suggestion 
that,  even  if  the  future  performance  here  is  to  be  treated 
as  utterly  impossible,  yet  the  detriment  or  disadvantage 
which  must  necessarily  result  to  the  unmarried ;  and  that 
is  a  sufficient  consideration  to  bind  the  defendant. ' ' 

Question  151:  State  the  facts  of  this  case  and  the  rule 
announced  by  it. 


CHAPTER    SEVENTEEN 

DISCHARGE  BY  AGREEMENT,  NOVATION, 
ALTERATION  AND  OPERATION  OF  LAW 

§  114.  Discharge  by  agreement.  §  117.  Discharge    by    operation    of 

§  115.  Discharge  by  novation.  law. 

§  116.  Discharge    by    alteration    of 
written  agreement. 

Sec.  114.    Discharge  by  Agreement. 

(Note:  A  contract  may  be  discharged  by  an  agreement 
whereby  both  parties  mutually  agree  to  rescind  it,  whether  or 
not  they  substitute  a  new  agreement  in  its  stead.  By  new  agree- 
ment a  contract  may  be  completely  abandoned  or  partially 
altered. 

A  written  contract  may  be  altered  by  oral  agreement.  A  con- 
tract under  seal  could  not,  at  common  law,  be  altered  except 
by  instrument  under  seal.  This  doctrine  still  prevails  in  some 
states.  But  everywhere,  if  such  modification  has  been  carried 
out,  it  will  not  be  disturbed.) 

Sec.  115.    Novation. 

(Note:  By  novation  we  indicate  a  change  in  an  existing 
contract  by  which  one  term  is  substituted  for  another,  or  one 
party  is  substituted  for  another.  Thus,  we  speak  of  novation  of 
parties,  and,  novation  of  terms. 

Novation  of  parties  indicates  that  one  of  the  parties  has  been 
released  of  all  liability  and  another  substituted  in  his  stead.  Of 
course  the  consent  of  all  the  parties  to  the  original  contract  and 
the  contract  of  the  new  party  is  necessary.  Thus,  A  has  a  con- 
tract with  B.     A,  B  and  C  by  agreement  substitute  C  in  B's 

246 


DISCHARGE  OF  CONTRACT  247 

stead,  releasing  B  from  all  further  obligation  or  connection  with 
the  contract.) 

Sec.  116.    Discharge  by  Alteration. 

(Note:  By  alteration  we  indicate  the  purposeful  change  by- 
one  party  without  the  consent  of  the  other  of  a  material  part  of 
a  written  agreement  for  the  purpose  of  changing  the  effect 
thereof.  The  law  is  that  such  alteration  discharges  the  other 
party  of  his  obligation  upon  the  writing. 

Suppose,  however,  the  party  claiming  to  be  so  discharged  ha8 
received  money  or  other  benefits  under  the  contract.  Can  the 
writing  be  ignored  and  suit  sustained  as  on  an  implied  contract 
for  a  recovery  of  the  benefits  or  their  value?  Some  cases 
hold  that  such  suit  is  maintainable;  other  cases  hold  other- 
wise. Alteration  by  a  third  person,  acting  without  consent  of 
the  party,  is  known  as  spoliation.  It  cannot  affect  the  rights  of 
the  parties  upon  the  agreement.  See  further  on  this  subject 
the  Cases  on  Negotiable  Paper.  See  also  remarks  of  Lotz,  J.,  on 
page  270,  past.) 

Sec.  117.   Discharge  by  Operation  of  Law. 

(Note :  Death  and  bankruptcy  operate  as  a  matter  of  law  to 
discharge  certain  contracts.  Bankruptcy  discharges  certain 
debts,  whether  due  or  immature,  but  does  not  usually  discharge 
executory  contracts  not  in  the  nature  of  money  debts. 

Death  discharges  contracts  whose  performance.it  makes  impos- 
sible, as  we  have  seen  under  Impossibility  of  Performance.) 


CHAPTER    EIGHTEEN 
REMEDIES  UPON  DISCHARGE 

§  118.  Remedy    in    damages    occa-  tract    to    recover    implied 

sioned  by  breach.  value  of  benefits  conferred. 

§  119.  Decree  for  compelling  specific  §  122.  Right   to   recover   reasonable 

performance.  value  of  benefits  conferred 

§  120.  Injunction  against  breach.  when    contract    discharged 

§  121.  Right  of  party  breaking  con-  *>y  impossibility  of  per- 
formance. 

Sec.  118.   Remedy  in  Damages  Occasioned  by  Breach. 

Case  No.  152.    Hadley  v.  Baxendale,  9  Exch.  R.  341. 

Facts:  Plaintiffs  sued  defendant  as  a  common  carrier 
for  the  breach  of  a  contract  to  carry  a  crank  shaft  which 
was  broken,  and  which  the  plaintiffs  were  sending  to  a 
certain  person  to  be  repaired.  Breach  alleged:  unjus- 
tifiable delay  in  carrying  the  shaft;  damages  claimed: 
loss  of  profits  for  several  days  occasioned  by  not  having 
the  crankshaft.  There  was  no  evidence  that  defendant 
was  informed  or  knew  that  loss  of  profits  would  follow 
its  failure  to  carry  the  goods  in  proper  time.  The  judge 
sent  the  case  to  the  jury  without  instructing  them  whether 
or  not  or  upon  what  basis  they  could  allow  the  loss  of 
profits,  and  the  jury  returned  a  verdict  for  £50,  which 
is  £25  more  than  defendant  admits  he  is  liable  to  pay. 
Defendant  appeals. 

Point  Involved:  The  rule  of  damages  to  govern  the 
assessment  thereof  upon  breach  of  contract.  Specifically, 
whether,  in  this  case,  the  defendant  under  a  contract  to 
carry  plaintiffs'  goods  was  liable,  on  breach  of  that  con- 

248 


REMEDIES  249 

tract,  for  loss  of  profits  sustained  by  plaintiffs  in  not 
having  such  goods  according  to  contract,  defendant  not 
being  informed  that  loss  of  profits  would  follow. 

Alderson,  B.:  "•  *  *  Now  we  think  the  proper 
rule  in  such  a  case  as  the  present  is  this:  Where 
two  parties  have  made  a  contract  which  one  of 
them  has  broken,  the  damages  which  the  other  party 
ought  to  receive  in  respect  of  such  breach  of 
contract  should  be  such  as  may  fairly  and  reasonably  be 
considered  either  arising  naturally,  i.  e.,  according  to  the 
usual  course  of  things,  from  such  breach  of  contract  it- 
self, or  such  as  may  reasonably  be  supposed  to  have  been 
in  the  contemplation  of  both  parties,  at  the  time  they 
made  the  contract,  as  the  probable  result  of  a  breach  of 
it.  Now,  if  the  special  circumstances  under  which  the 
contract  was  actually  made  were  communicated  by  the 
plaintiffs  to  the  defendants,  and  thus  known  to  both  par- 
ties, the  damages  resulting  from  the  breach  of  such  a 
contract,  which  they  would  reasonably  contemplate,  would 
be  the  amount  of  injury  which  would  ordinarily  follow 
from  a  breach  of  contract  under  these  special  circum- 
stances so  known  and  communicated.  But,  on  the  other 
hand,  if  these  special  circumstances  were  wholly  un- 
known to  the  party  breaking  the  contract,  he,  at  the  most, 
could  only  be  supposed  to  have  had  in  his  contemplation 
the  amount  of  injury  which  would  arise  generally,  and  in 
the  great  multitude  of  cases  not  affected  by  any  special 
circumstances,  from  such  a  breach  of  contract.  For,  had 
the  special  circumstances  been  known,  the  parties  might 
have  specially  provided  for  the  breach  of  contract  by  spe- 
cial terms  as  to  the  damages  in  that  case ;  and  of  this  ad- 
vantage it  would  be  very  unjust  to  deprive  them.  Now 
the  above  principles  are  those  by  which  we  think  the 
jury  ought  to  be  guided  in  estimating  the  damages  aris- 
ing out  of  any  breach  of  contract.  It  is  said,  that  other 
cases,  such  as  breaches  of  contracts  in  the  non-payment 
of  money,  or  in  the  not  making  a  good  title  to  land,  are 
to  be  treated  as  an  exception  from  this,  and  as  governed 


250  CONTRACTS 

by  a  conventional  rule.  But  as,  in  such  cases,  both  par- 
ties must  be  supposed  to  be  cognizant  of  that  well-known 
rule,  these  cases  may,  we  think,  be  more  properly  classed 
under  the  rule  above  enunciated  as  to  cases  under  known 
special  circumstances,  because  there  both  parties  may 
reasonably  be  presumed  to  contemplate  the  estimation  of 
the  amount  of  damages  according  to  the  conventional 
rule.  Now,  in  the  present  case  if  we  are  to  apply  the 
principles  laid  down,  we  find  that  the  only  cir- 
cumstances here  communicated  by  the  plaintiffs  to  the 
defendants  at  the  time  the  contract  was  made,  were,  that 
the  article  to  be  carried  was  the  broken  shaft  of  a  mill, 
and  that  the  plaintiffs  were  the  millers  of  that  mill. 
But  how  do  these  circumstances  show  reasonably  that  the 
profits  of  the  mill  must  be  stopped  by  an  unreasonable 
delay  in  the  delivery  of  the  broken  shaft  by  the  carrier 
to  the  third  person  ?  Suppose  the  plaintiffs  had  another 
shaft  in  their  possession  put  up  or  putting  up  at  the  time, 
and  that  they  only  wished  to  send  back  the  broken  shaft 
to  the  engineer  who  made  it;  it  is  clear  that  this  would 
be  quite  consistent  with  the  above  circumstances,  and 
yet  the  unreasonable  delay  in  the  delivery  would  have  no 
effect  upon  the  intermediate  profits  of  the  mill.  Or, 
again,  suppose  that,  at  the  time  of  the  delivery  to  the 
carrier,  the  machinery  of  the  mill  had  been  in  other 
respects  defective,  then,  also,  the  same  results  would  fol- 
low. Here  it  is  true  that  the  shaft  was  actually  sent 
back  to  serve  as  a  model  for  a  new  one,  and  the  want  of  a 
new  one  was  the  only  cause  of  the  stoppage  of  the  mill, 
and  that  the  loss  o£  profits  really  arose  from  not  send- 
ing down  the  new  shaft  in  proper  time,  and  that  this 
arose  from  the  delay  in  delivering  the  broken  one  to 
serve  as  a  model.  But  it  is  obvious  that,  in  a  great 
multitude  of  cases  of  millers  sending  off  broken  shafts  to 
third  persons  by  a  carrier  under  ordinary  circumstances, 
such  consequences  would  not,  in  all  probability,  have 
occurred;  and  these  special  circumstances  were  here 
never  communicated  by  the  plaintiffs  to  the  defendants. 
It  follows,  therefore,  that  the  loss  of  profits  here  cannot 


REMEDIES  251 

reasonably  be  considered  such  a  consequence  of  the 
breach  of  contract  as  could  have  been  fairly  and  reason- 
ably contemplated  by  both  the  parties  when  they  made 
this  contract.  For  such  loss  would  neither  have  flowed 
naturally  from  the  breach  of  this  contract  in  the  great 
multitude  of  such  cases  occurring  under  ordinary  circum- 
stances, nor  where  the  special  circumstances  which,  per- 
haps would  have  made  it  a  reasonable  and  natural  con- 
sequence of  such  breach  of  contract,  communicated  to  or 
known  by  the  defendants.  The  judge  ought,  therefore, 
to  have  told  the  jury  that,  upon  the  facts  then  before 
them,  they  ought  not  to  take  the  loss  of  profits  into  con- 
sideration at  all  in  estimating  the  damages.  There  must 
therefore  be  a  new  trial  in  this  case." 

Question  152:  (1.)  State  the  facts  in  this  ease.  What  cir- 
cumstances should  govern  the  jury  in  allowing  or  disallowing 
the  loss  of  profits  in  this  case  ? 

(2.)  From  this  case,  how  would  you  state  the  rule  of  the 
measurement  of  damages  in  contract  cases? 


Case  No.  153.    Jordan  v.  Patterson,  67  Conn.  473. 

Facts:  Plaintiffs  ordered  of  defendants  about  12,000 
undergarments  to  be  delivered  at  certain  times,  etc.  De- 
fendants accepted  the  order.  They  furnished  only  about 
160  dozen.    Plaintiffs  claim  damages  for  loss  of  profits. 

Point  Involved:  The  measure  of  damages  in  case  of 
a  breach  by  the  seller  of  a  contract  to  sell  articles  of 
merchandise. 

Andeews,  C.  J. :  "•  *  *  The  general  intention  of 
the  law  giving  damages  in  an  action  for  the  breach  of 
the  contract  like  the  one  here  in  question  is  -to  put  the 
injured  party,  so  far  as  it  can  be  done  by  money,  in  the 
same  position  that  he  would  have  been  in  if  the  contract 
had  been  performed.  In  carrying  out  this  general  in- 
tention, it  must  be  remembered  that  the  altered  position 


252  CONTRACTS 

to  be  redressed  must  be  one  directly  resulting  from  the 
breach.  *  *  *  In  an  action  like  the  present  one 
*  *  *  the  general  rule  is  that  the  plaintiff  is  entitled 
to  recover  in  damages  the  difference  at  the  time  and 
place  of  delivery  between  the  price  he  had  agreed  to 
pay  and  the  market  price,  if  greater  than  the  agreed 
price.  *  *  *  This,  of  course,  implies  that  there  is  a 
market  for  such  goods,  where  the  plaintiff  could  have 
supplied  himself.  If  there  is  no  such  market,  then  the 
plaintiff  should  have  recovered  the  actual  damages  which 
he  suffered.  There  may  be,  and  often  there  are,  special 
circumstances,  other  than  the  want  of  a  market,  sur- 
rounding a  contract  for  the  sale  and  purchase  of  goods, 
by  reason  of  which,  in  case  of  a  breach,  the  loss  to  a  ven- 
dor for  their  non-delivery  is  increased.  *  *  *  It 
must  be  remembered  also  *  *  *  that  any  dam- 
ages which  the  plaintiff  by  reasonable  diligence  on 
his  part  might  have  avoided,  are  not  to  be  re- 
garded as  the  proximate  result  of  defendant's  acts. 
In  the  present  case,  the  plaintiffs  claimed  that  at  the 
time  of  delivery  there  was  no  market  in  which  they  could 
procure  such  goods  as  the  defendants  were  to  deliver 
to  them.  This  was  a  fact  which  might  be  proved  by  the 
testimony  of  any  person  who  had  knowledge  on  the  sub- 
ject. And  if  it  was  true,  the  plaintiffs  could  not  by  any 
diligence  on  their  part  have  relieved  themselves  by  such 
purchase  from  any  portion  of  the  damages  which  they 
suffered.     *     *     * 

"It  is  alleged  in  the  complaint  that  by  reason  of  the 
default  of  the  defendants,  the  plaintiffs  had  been  obliged 
to  pay  large  damages  to  their  vendees  for  their  failure 
to  deliver  to  them  the  goods  so  bargained  to  them,  and 
they  offered  evidence  to  prove  such  a  payment  to  one 
of  their  vendees.  *  *  *  In  restoring  an  injured  party 
to  the  same  position  he  would  have  been  *  *  *  it  is 
necessary  to  take  into  account  losses  suffered,  as  much 
as  profits  prevented.  And  whenever  the  loss  suffered  or 
the  gain  prevented  results  directly  from  a  circumstance 
which  may  reasonably  be  considered  to  have  been  in  the 


REMEDIES  253 

contemplation  of  the  parties  when  entering  into  the  con- 
tract, the  plaintiff  should  be  allowed  to  prove  such  loss. 


Question  153:  (1.)  What  is  the  object  of  the  law  in  allowing 
damages  for  breach  of  contract? 

(2.)  By  what  circumstances  are  the  damages  measured  in  the 
above  case?  (a)  When  the  goods  have  market  value?  (b)  When 
they  have  no  market  value  ? 

(3.)  Is  the  plaintiff  bound  to  keep  the  damages  down?  How 
and  to  what  extent? 

Case  No.  154.    McKinley  v.  Goodman,  67  HI.  Ap.  374. 

Facts:  G.  was  a  cook  and  caterer  and  was  employed 
by  M.  to  run  a  lunch  counter  at  Bay  City,  Michigan.  She 
claimed  that  her  contract  with  M.  was  for  a  term  from 
June  15  to  September  1, 1894,  and  that  after  working  one 
month  she  was  wrongfully  discharged. 

Point  Involved:  The  duty  of  an  employee  wrongfully 
discharged  to  reduce  the  damages  by  seeking  employ- 
ment elsewhere. 

Me.  Presiding  Justice  Boggs:  "*  *  *  The  meas- 
ure of  damages  of  the  plaintiff,  if  found  entitled  to  re- 
cover, is  the  agreed  or  contract  price  during  the  unex- 
pired period,  less  any  sum  the  plaintiff  has  earned,  or 
might  have  earned,  by  the  exercise  of  reasonable  effort 
to  obtain  other  employment  in  the  same  line  or  general 
nature  of  business.     *     *     * 

1 1  *  #  #  Appellee  was  not  required  to  hunt  for  em- 
ployment in  occupations  different  in  their  general  nature 
and  character  from  her  avocation.     *     *     *" 

Question  154:  What  is  the  duty  of  an  employee  wrongfully 
discharged  to  seek  employment  elsewhere  ? 

Sec.  119.    Decree  for  Specific  Performance. 

Case  No.  155.    P.  &  F.  Corbin  v.  Tracy,  34  Conn.  325. 


254  CONTRACTS 

Facts:  Bill  in  equity  brought  to  compel  the  specific 
performance  of  a  contract  to  assign  a  patent  right. 

Point  Involved:  Generally,  when  courts  will  decree 
the  specific  performance  of  a  contract;  specifically 
whether  a  contract  to  assign  a  patent  right  will  be  spe- 
cifically enforced. 

Carpenter,  J.:  "Under  the  motion  in  error,  it  is  ob- 
jected that  the  petitioners  have  not  made  out  a  case  for 
the  interference  of  a  court  of  equity ;  that  courts  of  equity 
in  this  state  will  not  interfere  to  enforce  agreements  to 
sell  personal  property  unless  the  circumstances  are  such 
as  to  make  a  trust,  because  there  is  in  such  a  case  a 
remedy  at  law  by  an  action  for  damages. 

"The  objection  assumes  that  there  is  a  distinction  in 
questions  of  this  character  between  real  and  personal 
property.  If  any  such  distinction  exists  it  does  not  go 
to  the  extent  claimed. 

"The  ground  of  the  jurisdiction  of  a  court  of  equity 
in  this  class  of  cases,  is,  that  a  court  of  law  is  inadequate 
to  decree  a  specific  performance  and  can  relieve  the  in- 
jured party  only  by  a  compensation  in  damages,  which 
in  many  cases  would  fall  far  short  of  the  redress  which 
the  situation  might  require.  Whenever,  therefore,  the 
party  wants  the  thing  in  specie  and  he  cannot  otherwise 
be  fully  compensated  courts  of  equity  will  grant  him  a 
specific  performance.  They  will  decree  the  specific  per- 
formance of  a  contract  for  the  sale  of  lands,  not  because 
of  the  peculiar  nature  of  the  land,  but  because  a  party 
cannot  be  adequately  compensated  in  damages.  So  in 
respect  to  personal  estate ;  the  general  rule  that  courts  of 
equity  will  not  entertain  jurisdiction  for  a  specific  per- 
formance of  agreements  respecting  goods,  chattels, 
stocks,  choses  in  action,  and  other  things  of  a  merely 
personal  nature,  is  limited  to  cases  where  a  compensa- 
tion in  damages  furnishes  a  complete  and  satisfactory 
remedy.    2  Story's  Eq.  Jur.  sees.  717,  718. 

"The  jurisdiction,  therefore,  of  a  court  of  equity  does 
not  proceed  upon  any  distinction  between  real  estate  and 


REMEDIES  255 

personal  estate,  but  upon  the  ground  that  damages  at 
law  may  not,  in  the  particular  case,  afford  a  complete 
remedy.  1  Story 's  Eq.  Jur.  sec.  716,  717,  718,  and  cases 
there  cited;  Clark  v.  Flint,  22  Pick.  231.  When  the  rem- 
edy at  law  is  not  full  and  complete,  and  when  the  effect 
of  the  breach  cannot  be  known  with  any  exactness,  either 
because  the  effect  will  show  itself  only  after  a  long  time, 
or  for  any  other  reason,  courts  of  equity  will  enforce 
contracts  in  relation  to  personalty.  3  Parson  on  Con- 
tracts.    (5th  Ed.)  373. 

"An  application  of  these  principles  to  the  case  before 
us,  relieves  us  of  all  difficulty.  The  contract  relates  to  a 
patent  right  the  value  of  which  has  not  been  tested  by 
actual  use.  All  the  data  by  which  its  value  can  be  esti- 
mated are  yet  future  and  contingent.  *  *  *  In  any 
event  its  value  cannot  be  known  with  any  degree  of  exact- 
ness until  after  the  lapse  of  time.  *  *  *  On  the  whole, 
we  are  satisfied  that  justice  can  only  be  done  in  a  case 
like  this  by  a  specific  performance  of  the  contract." 

Question  155:  (1.)  To  what  sort  of  remedy  is  a  court  of  law 
(as  distinguished  from  a  court  of  equity)  mainly  confined.  (2.) 
What  is  specific  performance?  (3.)  On  what  grounds  will  it  be 
granted  ?  (4.)  Will  a  decree  for  specific  performance  be  granted 
in  case  of  contracts  to  sell  real  estate  ?  (5.)  In  case  of  contracts 
to  sell  personal  property?  (6.)  In  case  of  contracts  to  render 
personal  services  ? 

(2.)  A  contracts  with  B  to  sell  B  100  bushels  of  wheat.  Can 
A  compel  the  specific  performance  of  this  contract?    Why? 

Sec.  120.    Injunction  Against  Breach. 

Case  No.  156.  Philadelphia  Ball  Club  v.  La  Joie,  202 
Pa.  210. 

Facts:  Bill  brought  to  enjoin  defendant  from  furnish- 
ing his  services  as  a  base  ball  player  to  rival  base  ball 
organizations.     Facts  appear  in  the  opinion. 

Point  Involved:  Whether  a  court  will  enjoin  a  party 
to  a  contract  from  breaking  a  covenant  of  a  negative 
character  contained  therein. 


256  CONTRACTS 

Potter,  J. :  '  *  The  defendant  in  this  case  contracted  to 
serve  the  plaintiff  as  a  baseball  player  for  a  stipulated 
time.  During  that  period  he  was  not  to  play  for  any 
other  club.  He  violated  his  agreement  *  *  *.  The 
plaintiff  by  means  of  this  bill,  sought  to  restrain  him  dur- 
ing-the  period  covered  by  the  contract.     *     *     * 

"(The  defendant)  has  been  for  several  years  in  the 
service  of  the  plaintiff  club  and  has  been  re-engaged  from 
season  to  season  at  a  constantly  increasing  salary.  He 
has  become  thoroughly  familiar  with  the  action  and 
methods  of  other  players  in  the  club  and  his  own  work  is 
peculiarly  meritorious  as  an  integral  part  of  the  team- 
work which  is  so  essential.  *  *  *  La  Joie  is  well 
known,  and  has  great  reputation  among  the  patrons  of 
the  sport.  *  *  *  He  may  not  be  the  sun  in  the  base- 
ball firmament,  but  he  is  certainly  a  bright  particular 
star.  We  feel,  therefore,  that  the  evidence  in  this  case 
justifies  the  conclusion  that  the  services  of  the  defendant 
are  of  such  a  unique  character,  and  display  such  a  special 
knowledge,  skill  and  ability  as  renders  them  of  peculiar 
value  to  the  plaintiff,  and  so  difficult  of  substitution  that 
their  loss  will  produce  'irreparable  injury/  *  *  * 
The  case,  therefore,  properly  calls  for  the  aid  of  equity  in 
negatively  enforcing  the  performance  of  the  contract,  by 
enjoining  its  breach.  *  *  *  The  court  cannot  compel 
the  defendant  to  play  for  the  plaintiff,  but  it  can  restrain 
him  from  playing  for  another  club  in  violation  of  his 
agreement.     *     *     *" 

Question  156:  (1.)  What  were  the  facts,  the  specific  ques- 
tion presented  and  the  Court 's  decision  in  the  above  case  ? 

(2.)  Could  the  Court  decree  specific  performance  of  the  con- 
tract to  work  for  the  Philadelphia  ball  club  ?    Why  ? 

(3.)  Suppose  the  club  had  contracted  for  the  services  of  a 
carpenter  to  keep  the  grounds  in  shape  during  the  season,  with 
a  clause  in  the  contract  that  he  would  work  for  no  one  else 
during  that  time,  would  the  Court  enjoin  the  breach  of  that 
covenant  ?    Why  ? 

(4.)  A  sells  his  business  to  B,  and  covenants  he  will  not  com- 
pete with  A  for  a  certain  time  and  within  a  certain  territory 


REMEDIES  257 

(the  reasonableness  of  which  we  may  assume).  He  starts  to 
open  up  a  rival  place  of  business  contrary  to  the  terms  of  his 
agreement.     Will  the  Court  issue  an  injunction? 

Sec.  121.    Right  of  Party  Breaking  Contract  to  Recover 
Implied  Value  of  Benefits  Conferred. 

(Note :  This  section  covers  the  cases  in  which  there  has  been 
no  waiver  of  breach  by  acceptance  or  otherwise,  the  benefits  in 
these  cases  being  under  the  circumstances  not  restorable,  i.  e., 
as  services  rendered  before  breach  and  of  property  built  before 
breach  on  real  estate.) 

(a)  One  view,  no  recovery.  value  of  benefit. 

(b)  The    other    view    recovery    for 

(a)  One  View,  No  Recovery. 

Case  No.  157.    Conn  et  al.  v.  Plumer,  88  Wis.  622. 

Facts:  Suit  to  recover  the  reasonable  value  of  marble 
put  into  a  building,  under  a  contract  of  construction  not 
performed. 

Point  Involved:  The  right  to  recover  as  on  an  implied 
contract  for  benefits  conferred  and  retained  by  the  other 
party  with  no  option  to  reject,  under  an  express  con- 
tract wilfully  broken  by  the  plaintiff. 

WrasLow,  J. :  "If  there  was  a  complete  contract  made 
by  the  plaintiffs,  at  the  time  of  the  meeting  in  the  archi- 
tect's office  to  furnish  all  the  granite  required  for  the 
building,  according  to  the  plans  and  specifications,  for  a 
specified  sum,  then  the  plaintiffs  cannot  recover  on  quan- 
tum meruit,  because  it  is  admitted  they  failed  to  perform 
such  contract.     *     *     *" 

Question  157:  State  the  facts  and  the  rule  of  law  of  the  above 
ease. 

Case  No.  158.    Stark  v.  Parker,  2  Pick.  (Mass.)  267. 
Facts:    Suit  for  value  of  services  rendered  by  plain- 
tiff for  defendant.    Plaintiff  was  employed  for  one  year 


258  CONTRACTS 

for  the  sum  of  $120.00  for  the  year.  He  quit  before  the 
year  was  out,  without  cause  and  against  defendant's 
consent. 

Point  Involved:  The  same  as  in  the  previous  case, 
except  that  the  benefits  conferred  are  services  rendered. 

Lincoln,  J. :  "  *  *  *  The  direction  to  the  jury  was, 
'that  although  proved  to  them,  that  the  plaintiff  agreed 
to  serve  the  defendant  for  an  agreed  price  for  one  year, 
and  had  voluntarily  left  his  service  before  the  expiration 
of  that  time,  and  without  the  fault  of  the  defendant, 
and  against  his  consent,  still  the  plaintiff  would  be  en- 
titled to  recover  of  the  defendant,  in  this  action,  a  sum 
in  proportion  to  the  time  he  had  served,  deducting  there- 
from such  sum  (if  any)  as  the  jury  might  think  the  de- 
fendant had  suffered  by  having  his  service  deserted. '  If 
this  direction  was  wrong,  the  judgment  which  was  ren- 
dered must  be  reversed,  and  the  caste  sent  to  a  new  trial, 
in  which  the  diversity  of  construction  given  to  the  char- 
acter and  terms  of  the  contract  by  the  counsel  for  the 
respective  parties  may  be  a  subject  for  distinct  consider- 
ation. 

<<#     *     * 

''The  performance  of  a  year's  service  was  in  this  case 
a  condition  precedent  to  the  obligation  of  payment.  The 
plaintiff  must  perform  the  condition  before  he  is  entitled 
to  recover  anything  under  the  contract,  and  he  has  no 
right  to  renounce  his  agreement  and  recover  upon  a 
quantum  meruit.  The  cases  of  McMillan  v.  Vanderlip, 
12  Johns  E.  165;  Jennings  v.  Camp,  13  Johns  E.  94,  and 
Reab  v.  Moor,  19  Johns  E.  337,  are  analogous  in  their  cir- 
cumstances to  the  case  at  bar  and  are  directly  and 
strongly  in  point.  The  decisions  in  the  English  cases 
express  the  same  doctrine,  Waddington  v.  Oliver,  2  New 
Eep.  61 ;  Ellis  v.  Hamlen,  8  Taunt.  52 ;  and  the  principle 
is  fully  supported  by  all  the  elementary  writers. " 

Qmstion  158:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 


REMEDIES  m 

(b)    The  Other  View,  Recovery  for  Reasonable  Value  for 

Benefit. 


Case  No.  159.    Britton  v.  Turner,  6  N.  H.  481. 

Facts:    See  the  opinion. 

Point  Involved:    The  same  as  in  the  preceding  case. 

Paekee,  J.:  "It  may  be  assumed  that  the  labor  per- 
formed by  the  plaintiff,  and  for  which  he  seeks  to  recover 
a  compensation  in  this  action,  was  commenced  under  a 
special  contract  to  labor  for  the  defendant  for  the  term 
of  one  year,  for  the  sum  of  one  hundred  and  twenty  dol- 
lars, and  that  the  plaintiff  had  labored  but  a  portion  of 
that  time,  and  had  voluntarily  failed  to  complete  the 
entire  contract. 

"It  is  clear,  then,  that  he  is  not  entitled  to  recover  upon 
the  contract  itself j  because  the  service,  which  was  to  en- 
title him  to  the  sum  agreed  upon,  has  never  been  per- 
formed. 

"But  the  question  arises,  can" the  plaintiff,  under  these 
circumstances,  recover,  a  reasonable  sum  for  the  service 
he  has  actually  performed,  under  the  count  in  quantum 
meruit. 

"Upon  this  and  questions  of  similar  nature,  the  de- 
cisions to  be  found  in  the  books  are  not  easily  reconciled. 

"It  has  been  held,  upon  contracts  of  this  kind  for  labor 
to  be  performed  at  a  specified  price,  that  the  party  who 
voluntarily  fails  to  fulfil  the  contract  by  performing  the 
whole  labor  contracted  for,  is  not  entitled  to  recover  any- 
thing for  the  labor  actually  performed,  however  much 
he  may  have  done  towards  the  performance,  and  this 
has  been  considered  the  settled  rule  of  law  upon  this  sub- 
ject 2  Pick  267,  Stark  v.  Parker;  2  Mass.  147,  Faxon 
v.  Mansfield;  12  Johns.  165,  McMillen  v.  Vanderlip;  13 
Johns.  94,  Jennings  v.  Camp;  19  Johns.  337,  Eeab  v. 
Moor;  8  Cowen,  63,  Lantry  v.  Parks;  9  Barn.  &  Cres. 
92,  Sinclair  v.  Bowles;  2  Stark.  Rep.  256,  Spain  v. 
Arnott. 


260  CONTRACTS 

"That  such  a  rule  in  its  operation  may  be  very  un- 
equal, not  to  say  unjust,  is  apparent. 

"A  party  who  contracts  to  perform  certain  specified 
labor,  and  who  breaks  his  contract  in  the  first  instance, 
without  any  attempt  to  perform  it,  can  only  be  made 
liable  to  pay  the  damages  which  the  other  party  has  sus- 
tained by  reason  of  such  non  performance,  which  in  many 
cases  may  be  trifling — whereas  a  party  who  in  good  faith 
has  entered  upon  the  performance  of  his  contract,  and 
nearly  completed  it,  and  then  abandoned  the  further  per- 
formance— although  the  other  party  has  had  the  full  ben- 
efit of  all  that  has  been  done,  and  has  perhaps  sustained 
no  actual  damage — is  in  fact  subjected  to  a  loss  of  all 
which  has  been  performed,  in  the  nature  of  damages  for 
the  non-fulfilment  of  the  remainder,  upon  the  technical 
rule  that  the  contract  must  be  fully  performed  in  order 
to  a  recovery  of  any  part  of  the  compensation. 

"By  the  operation  of  this  rule,  then,  the  party  who 
attempts  performance  may  be  placed  in  a  much  worse 
situation  than  he  who  wholly  disregards  his  contract,  and 
the  other  party  may  receive  much  more  by  the  breach  of 
the  contract,  than  the  injury  which  he  has  sustained  by 
such  breach,  and  more  than  he  could  be  entitled  to 
were  he  seeking  to  recover  damages  by  an  action. ' '  (The 
court  held  that  the  plaintiff  was  entitled  to  recover  the 
reasonable  value  of  his  services.) 

Question  159:  Give  the  Court's  reason  for  differing  with  the 
cases  holding  the  opposite  view. 

Sec.  122.  Right  to  Recover  Reasonable  Value  of  Benefits 
Conferred  When  Contract  After  Partial  Execution  Dis- 
charged by  Impossibility  of  Performance. 

Case  No.  160.    Fenton  v.  Clarke,  11  Vt.  557. 

Facts:  Plaintiff  contracted  to  work  for  defendant  for 
four  months  at  $10  per  month,  no  money  to  be  paid 
him  until  he  had  worked  the  entire  period.  He  worked 
almost  two  months  and  quit  on  account  of  sickness.  He 
brings  suit  to  recover  for  the  value  of  his  services. 


REMEDIES  261 

Point  Involved:  Whether  if  one  who  has  contracted 
to  render  personal  services,  becomes  unable  to  perform, 
on  account  of  sickness,  he  can  recover  for  the  services 
rendered  in  partial  performance. 

Bennett,  J. :  "*  *  *  In  the  case  before  the  Court, 
the  plaintiff  contracted  with  the  defendant  to  labor  per- 
sonally for  him  four  months,  at  $10  per  month,  and  by 
the  terms  of  the  contract  was  to  receive  no  pay  till  he  had 
worked  the  four  months.  These  services,  being  of  a  per- 
sonal character,  the  contract  could  not  be  performed  by 
another,  and  as  the  plaintiff  was  disabled  to  perform  it 
himself,  by  reason  of  sickness,  which  was  the  act  of  God, 
upon  the  authority  of  the  foregoing  cases  the  contract 
was  discharged.  The  inquiry  then  arises,  what  is  the  re- 
sult f  It  appears  to  me  apparent  that  the  plaintiff  must, 
at  least,  after  the  expiration  of  the  four  months,  be  per- 
mitted to  recover,  as  upon  a  quantum  meruit,  pro  rata 
for  the  services  rendered.  Common  justice  requires  this, 
and  I  should  be  sorry  to  find  that  it  was  not  tolerated  by 
the  principles  of  the  common  law.  To  hold,  in  a  case  like 
this,  where  the  plaintiff  has  been  discharged  of  his  con- 
tract by  the  act  of  God,  that  there  can  be  no  apportion- 
ment, upon  the  technical  ground  that  the  contract  is  en- 
tire, and  its  performance  a  condition  precedent,  is  to  my 
mind,  leaving  the  substance  and  adhering  to  the  shadow. 
If  the  plaintiff  be  relieved  from  the  contract,  how  can  the 
defendant  interpose  it,  as  a  reason   why   the   plaintiff 

should  not  recover  for  the  labor  actually  performed. 

»    *     * 

"It  is  argued  by  the  defendant,  that  in  this  case  it 
was  the  duty  of  the  plaintiff  after  he  had  recovered  from 
the  sickness,  to  return  to  the  defendant  and  complete  his 
four  months'  labor  and  that,  as  he  did  not  do  it,  he  is 
for  this  cause  prevented  from  a  recovery.  It  is 
undoubtedly  true  that  when  any  special  matter 
does  not  operate  to  annul  the  contract,  but  only  as  a 
temporary  suspension  of  it,  *  *  *  it  is  the  duty 
of  the  party  to  perform  the  contract,  within  a  reasonable 


262  CONTRACTS 

time  after  the  cause  of  its  suspension  shall  have  ceased 
to  operate.  But  in  the  present  case,  the  auditor  finds, 
that  the  plaintiff  was  not  restored  to  health  until  after 
the  expiration  of  four  months.  His  services  were  of  a 
personal  character  and  the  time  of  performance  material 
to  the  rights  of  the  parties.  The  defendant  could  not 
be  required  to  accejpt  of  the  services,  at  another  time,  and 
the  plaintiff  was  as  much  excused  from  their  perform- 
ance by  reason  of  his  sickness  as  he  would  have  been 
in  the  case  of  death,  and  the  contract  being  annulled,  by 
the  act  of  God,  and  not  simply  suspended  for  a  time, 
there  is  no  reason  why  the  plaintiff  should  have  prof- 
fered to  work  for  the  defendant  after  being  restored  to 
health.  Such  proffer  the  defendant  might  have  rejected, 
and  it  could  have  no  possible  effect  upon  the  rights  of  the 
parties  upon  what  was  already  past.     *     *     * ' ' 

Question  160:    What  were  the  facts  in  the  above  case  1   What 
did  the  Court  decide? 


DIVISION  B 


PRINCIPAL  AND  AGENT 


DIVISION    B 
PRINCIPAL  AND  AGENT 

Part  V.  The  Nature  and  Formation  of  the  Relation 
of  Principal  and  Agent. 

Part  VI.  Mutual  Rights  and  Duties  of  Principal  and 
Agent. 

Part  VII.  The  Rights  and  Obligations  of  Third  Per- 
sons Growing  Out  of  the  Agency. 

Part  VIII.  Termination  of  the  Relation  of  Principal 
and  Agent. 

PART    V 

THE  NATURE  AND  FORMATION  OF  THE  RELA- 
TION OF  PRINCIPAL  AND  AGENT 

(Note:     Cases  on  the  Legality  of  Agency  omitted.     See  the 
Cases  on  Contracts.) 

Chapter  Nineteen.  Definitions  and  Distinctions. 

Chapter  Twenty.  Capacity  to  Act  as  Principal  and 

Agent. 
Chapter  Twenty-one.     The     Authority     Conferred    by 

Prior  Act. 
Chapter  Twenty-two.     The     Authority     Conferred    by 

Ratification. 


265 


CHAPTER    NINETEEN 
DEFINITIONS  AND  DISTINCTIONS 

§  123.  Definition  of  agent  and  serv-       §  125.  Kinds  of  agents, 
ant. 

§  124.  Definition    of    agent    as    dis- 
tinguished from  servant. 

Sec.  123.    Definition  of  Agent  and  Servant. 

(Note :  We  may  first  approach  the  definition  of  the  agent  by 
making  no  distinction  between  agent  or  servant.  Says  Mechem 
[Agency,  Sec.  2],  "*  *  *  the  two  relations  are  essentially 
similar.  *  *  *  the  same  person  often  assumes  to  the  prin- 
cipal many  of  the  characteristics  of  both  servant  and  agent, 
*  *  *  most  of  the  principles  which  govern  one  relation  apply 
equally  to  another. 

Case  No.  161.    Echols  v.  State,  158  Ala.  48. 

Facts:  The  facts  are  stated  in  the  first  paragraph  of 
the  opinion. 

Point  Involved:  Generally,  of  the  circumstances  that 
constitute  one  an  agent.  Specifically  whether  a  tailor 
who  contracts  with  a  customer  to  make  him  a  suit  of 
clothes  is  an  agent  (or  servant)  of  such  customer. 

Simpson,  J.  "The  appellant  was  convicted  of  the  of- 
fense of  embezzlement;  the  affidavit  charging  that  he 
'being  an  agent,  servant  or  clerk  of  affiant,  embezzled  or 
fraudulently  converted  to  his  own  use  money  to  about 
the  amount  of  $18.  *  *  * '  The  evidence  for  the  state, 
in  its  strongest  light  against  the  defendant,  is  that  the 
defendant,  being  a  tailor,  agreed  to  make  a  suit  of  clothes 

266 


DEFINITIONS  267 

for  the  prosecutor  for  a  certain  amount  of  money,  part 
of  which  was  to  be  paid  in  cash  and  the  remainder  to  be 
paid  in  the  future;  that  the  prosecutor  made  the  cash 
payment  and  demanded  his  suit  of  clothes ;  that  defend- 
ant refused  to  deliver  without  the  payment  of  more  money 
and  also  refused  to  return  his  money. 

"This  Court  said  in  discussing  a  former  statute 
*  *  *  that  an  agent  is  'one  who  undertakes  to  trans- 
act some  business  or  to  manage  some  affair  for  another, 
by  the  authority  and  on  account  of  the  latter  and  to  ren- 
der an  account  of  it ; '  also  that '  ' '  agent ' '  so  employed  in 
this  section,  imports  a  principal,  and  implies  employ- 
ment, service,  delegated  authority  to  do  something  in  the 
name  and  stead  of  the  principal. '  Pullam  v.  State,  78  Ala. 
31,  34,  56  Am.  Rep.  21.  The  relation  of  principal  and 
agent  did  not  exist  between  the  prosecutor  and  the  de- 
fendant, but  the  relation  of  seller  and  purchaser.  The 
defendant  did  not  undertake  to  do  anything  in  the  name 
and  stead  of  the  prosecutor.  The  money  was  not  placed 
in  his  hands  to  be  used  or  cared  for,  and  accounted  for 
to  the  prosecutor,  but  was  paid  to  him  in  part  settlement 
for  a  suit  of  clothes,  and  thereby  became  the  money  of 
the  defendant  to  use  as  he  pleased.  Whatever  other  lia- 
bility or  penalty  the  defendant  may  have  incurred,  he 
could  not  be  convicted  of  embezzlement  on  the  facts  of 
this  case.     *     *     *" 

Question  161:  (1.)  When  the  customer  in  this  case  paid  the 
money  to  the  tailor,  to  whom  did  it  belong  ? 

(2.)  Why  was  the  tailor  not  an  agent  or  servant  of  the  cus- 
tomer ? 

(3.)  What  do  you  understand  to  be  the  crime  of  embezzle- 
ment? 

Case  No.  162.     Singer  Mfg.  Co.  v.  Rahn,  132  U.  S.  518. 

Facts:  Suit  brought  by  Rahn  against  Singer  Mfg.  Co. 
to  recover  damages  arising  out  of  a  personal  injury  sus- 
tained by  plaintiff  alleged  to  arise  from  the  negligence  of 
the  defendant's  servant,  one  Corbett,  who  sold  defend- 
ant's sewing  machines,  using  the  horse  and  wagon  fur- 


268  AGENCY 

nished  him  for  that  purpose.  Defendant  claims  that 
Corbett  is  not  its  servant  or  agent,  and  that  it  is  there- 
fore not  liable  for  his  torts  in  driving  said  wagon. 

Point  Involved:  What  facts  determine  whether  one  is 
an  agent  (or  servant)  or  an  independent  contractor. 

Gkay,  J.  "The  general  rules  that  must  govern  this 
case  are  undisputed,  and  the  only  controversy  is  as  to 
their  application  to  the  contract  between  the  defendant 
company  and  Corbett,  the  driver,  by  whose  negligence 
the  plaintiff  was  injured. 

"A  master  is  liable  to  third  persons  injured  by  negli- 
gent acts  done  by  his  servant  in  the  course  of  his  employ- 
ment, although  the  master  did  not  authorize  or  know  of 
the  servant 's  act  or  neglect,  or  even  if  he  disapproved  or 
forbade  it.  Philadelphia  &  Beading  Railroad  v.  Derby, 
14  How.  (U.  S.)v478,  486.  And  the  relation  of  master 
and  servant  exists  whenever  the  employer  retains  the 
right  to  direct  the  manner  in  which  the  business  shall  be 
done,  as  well  as  the  result  to  be  accomplished,  or,  in  other 
words,  'not  only  what  shall  be  done,  but  how  it  shall  be 
done.'  Railroad  Co.  v.  Hanning,  15  Wall.  (U.  S.)  649, 
656. 

"The  contract  between  the  defendant  and  Corbett, 
upon  the  construction  and  effect  of  which  this  case  turns, 
is  entitled  'Canvasser's  Salary  and  Commission  Con- 
tract.' The  compensation  to  be  paid  to  Corbett  by  the 
company,  for  selling  its  machines,  consisting  of  a  'selling 
commission'  on  the  price  of  machines  sold  by  him,  and 
'a  collecting  commission'  on  the  sums  collected  of  the 
purchasers,  is  uniformly  and  repeatedly  spoken  of  as 
made  for  his  '  services. '  The  company  may  discharge  him 
by  terminating  the  contract  at  any  time,  whereas  he  can 
terminate  it  only  upon  ten  days'  notice.  The  company 
is  to  furnish  him  with  a  wagon ;  and  the  horse  and  har- 
ness to  be  furnished  by  him  are  'to  be  used  exclusively  in 
canvassing  for  the  sale  of  said  machines  and  the  general 
prosecution  of  said  business.' 

"But  what  is  more  significant,  Corbett  'agrees  to  give 


DEFINITIONS  269 

his  exclusive  time  and  best  energies  to  said  business, '  and 
is  to  forfeit  all  his  commissions  under  the  contract,  if, 
while  it  is  in  force,  he  sells  any  machines  other  than  those 
furnished  to  him  by  the  company,  and  he  'further  agrees 
to  employ  himself  under  the  direction  of  the  said  Singer 
Manufacturing  Company,  and  under  such  rules  and  in- 
structions as  it  or  its  manager  at  Minneapolis  shall 
prescribe. 

4 'In  short,  Corbett,  for  the  commissions  to  be  paid  him, 
agrees  to  give  his  whole  time  and  services  to  the  business 
of  the  company;  and  the  company  reserves  to  itself  the 
right  of  prescribing  and  regulating  not  only  what  busi- 
ness he  shall  do,  but  the  manner  in  which  he  shall  do  it ; 
and,  if  it  saw  fit,  might  instruct  him  what  route  to  take, 
or  even  at  what  speed  to  drive. 

"The  provision  of  the  contract,  that  Corbett  shall  not 
use  the  name  of  the  company  in  any  manner  whereby  the 
public  or  any  individual  may  be  led  to  believe  that  it  is 
responsible  for  his  actions,  does  not  and  cannot  affect  its 
responsibility  to  third  persons  injured  by  his  negligence 
in  the  course  of  his  employment. 

1  f  The  circuit  court  therefore  rightly  held  that  Corbett 
was  the  defendant's  servant,  for  whose  negligence  in  the 
course  of  his  employment,  the  defendant  was  responsible 
to  the  plaintiff.     *     *     *" 

Question  162:  (1.)  State  in  detail  what  facts  led  the  Court 
to  determine  that  the  salesman  was  an  agent  or  servant. 

(2.)  A  desiring  to  construct  a  house  on  his  land  procures  B, 
a  building  contractor,  to  do  the  work  which  is  to  be  completed 
to  the  satisfaction  of  A's  architect.  B  contracts  with  various 
parties  to  do  particular  parts  of  the  work.  One  of  these  is  C, 
an  employing  painter,  who  is  to  do  all  the  painting  for  a  certain 
lump  price.  D,  a  painter,  works  for  C.  By  his  negligence  he 
injures  M.    Is  C,  B,  or  A  liable  ? 

(Note:  As  an  illustration  of  the  distinction  between  an  agent 
and  an  "independent  contractor"  and  the  contractual  results 
that  follow  from  the  distinction,  see  Case  167  post. 

For  the  responsibility  of  the  principal  for  the  torts  of  his 
agent,  see  Chapter  30.) 


270  AGENCY 

Sec.  124.    Definition  of  Agent  as  Distinguished  from 
Servant. 

Case  No.  163.    Kingan  &  Co.  v.  Silvers,  13  Ind.  App.  80. 

Facts:  Suit  against  W.  F.  Silvers  and  James  Silvers 
upon  a  note  made  by  the  Silvers  to  order  of  Kingan  & 
Co.  The  complaint  set  forth  the  note  and  alleged  that 
it  had  been  procured  from  defendants  by  plaintiffs' 
traveling  salesman,  one  Nichols,  an  agent  employed  to 
sell  goods,  but  having  no  authority  to  take  notes  or  make 
settlements  for  plaintiffs.  That  said  salesman  being 
about  to  go  to  Lebanon,  Indiana,  to  take  orders  for  goods, 
was  instructed  to  procure  a  promissory  note  from  defend- 
ants for  $388.03  on  account  of  an  indebtedness  to  plain- 
tiff; that  he  did  procure  such  note  and  afterwards  and 
without  plaintiffs'  knowledge  he  altered  it  by  erasing 
"after  maturity"  and  inserting  "from  date"  so  that 
the  note  was  made  by  its  terms  to  bear  8%  from  date  in- 
stead of  after  maturity,  that  plaintiffs  claim  on  the  note 
in  its  original  condition,  repudiating  Nichols '  act  in  alter- 
ing the  note. 

Defense  (in  form  of  demurrer)  that  the  complaint 
shows  that  plaintiffs  by  their  agent  are  guilty  of  a  pur- 
poseful and  material  alteration  of  the  note  and  there- 
fore have  no  right  thereupon. 

Point  Involved:  The  difference  between  an  agent  and 
a  servant;  what  sort  of  duties  make  one  an  agent,  and 
what,  a  servant ;  the  power  of  the  agent  and  the  servant 
to  represent  the  principal  for  contractual  purposes  with 
third  persons. 

Lotz,  J.  ' '  *  *  *  The  most  effectual  means  of  pre- 
serving the  integrity  of  such  instruments  are  the  rule 
that  a  material  alteration  destroys  the  instrument  so 
that  no  recovery  can  be  had  upon  it  either  in  its  original 
or  altered  condition,  and  the  rule  that  no  recovery  can 
be  had  upon  the  original  consideration  if  the  change  be 
made  for  a  fraudulent  purpose.     *     *     * 

<<*     *     *    rpne  cnange  in  the  note  was  not  made  by 


DEFINITIONS  271 

the  plaintiffs'  order  or  direction,  but  it  entrusted  certain 
business  to  another  as  its  agent,  and  such  person  made 
the  alteration.  If  the  alteration  was  made  by  the  agent 
while  in  the  transaction  of  the  principal's  business,  and 
in  the  scope  of  his  authority,  then  the  act  of  the  agent  is 
the  act  of  the  principal, — "qui  facit  per  cdium,  facit  per 
se." 

"*  *  *  If  he  was  the  plaintiffs'  agent  and  the  act 
was  within  the  scope  of  his  authority,  then  his  act  must 
be  deemed  the  act  of  the  plaintiffs,  and  the  law  is  with 
the  defendants.  If  his  position  was  that  of  a  mere  stran- 
ger to  the  note  then  the  law  is  with  the  plaintiffs. 

a  #     #     *     j^  ^e  ^me  Nichols  made  the  alteration  of 

the  note,  was  he  the  agent  or  servant  of  the  plaintiff  in 
respect  to  his  duties  pertaining  to  said  note.  *  *  * 
Nichols  was  the  agent  of  the  plaintiff  *  *  *  to  pro- 
cure the  note.  *  *  *  Did  his  relation  as  agent  cease 
when  he  obtained  the  note,  or  did  it  continue  until  the 
note  was  delivered  to  the  plaintiff!  *  *  *  This  leads 
to  the  inquiry  who  are  agents  and  who  are  servant?  In 
the  primitive  conditions  of  society  the  things  which  were 
the  subjects  of  sale  and  trade  were  few  in  number.  There 
was  little  occasion  for  any  one  to  engage  in  commercial 
transactions,  and  when  it  did  become  necessary  the  busi- 
ness was  generally  transacted  by  the  parties  thereto  in 
person.  But  the  strong  and  powerful  had  many  servants 
who  were  usually  slaves.  The  servants  performed  menial 
and  manual  services  for  the  master.  As  civilization  ad- 
vanced the  things  which  are  the  subjects  of  commerce 
increased,  and  it  became  necessary  to  perform  commer- 
cial transactions  through  the  medium  of  other  persons. 
The  relation  of  principal  and  agent  is  but  an  outgrowth 
or  expansion  of  the  relation  of  master  and  servant.  The 
same  rules  that  apply  to  the  one  generally  apply  to  the 
other.  There  is  a  marked  similarity  in  the  legal  conse- 
quences flowing  from  the  two  relations.  It  is  often  diffi- 
cult td  distinguish  the  difference  between  an  agent  and  a 
servant.  Agents  are  often  denominated  servants  and 
servants  are  often  called  agents.    The  word  'servant'  in 


272  AGENCY 

its  broadest  meaning  includes  an  agent.  There  is,  how- 
ever, in  legal  contemplation  a  difference  between  an  agent 
and  a  servant.  The  Romans,  to  whom  we  are  indebted 
for  many  of  the  principles  of  agency,  in  the  early  stages 
of  their  laws  used  the  terms  mandatum  (to  put  into  one's 
hands  or  confide  to  the  discretion  of  another)  and  ne- 
gotium  (to  transact  business  or  to  treat  concerning  pur- 
chases) in  describing  this  relation.  Story  Agency,  section 
4.  Agency,  properly  speaking,  relates  to  commercial  or 
business  transactions,  while  service  has  reference  to  ac- 
tions upon  or  concerning  things.  Service  deals  with 
matters  of  manual  or  mechanical  execution.  An  agent  is 
the  more  direct  representative  of  the  master  and  clothed 
with  higher  powers  and  broader  discretion  than  a  servant. 
Mechem  Agency,  sections  1  and  2. 

"The  terms  *  agent'  and  'servant'  are  so  frequently 
used  interchangeably  in  the  adjudications  that  the  reader 
is  apt  to  conclude  that  they  mean  the  same  thing.  We 
think,  however,  that  the  history  of  the  law  bearing  on  this 
subject,  shows  that  there  is  a  difference  between  them. 
Agency  in  its  legal  sense  always  imports  commercial 
dealings  between  two  parties  by  and  through  the  medium 
of  another.  An  agent  negotiates  or  treats  with  third 
parties  in  commercial  matters  for  another.  When  Nich- 
ols was  engaged  in  treating  with  the  defendants  concern- 
ing the  note  he  was  an  agent.  When  the  note  was 
delivered  to  him  it  was  in  law  delivered  to  the  plaintiff 
and  he  ceased  to  treat  or  deal  with  the  defendants.  All 
his  duties  concerning  the  note  then  related  to  the  plain- 
tiff. It  was  his  duty  to  carry  and  deliver  it  to  the  plain- 
tiff. In  doing  this  he  owed  no  duty  to  the  defendants. 
He  ceased  to  be  an  agent  because  he  was  not  required  to 
deal  further  with  third  parties.  He  was  then  a  mere 
servant  of  the  plaintiff  charged  with  the  duty  of  faith- 
fully carrying  and  delivering  the  note  to  his  master. 
When  Nichols  made  the  alteration  in  the  note  he  was  the 
servant  and  not  the  agent  of  the  plaintiff.     *     *     * 

"Modern  jurisprudence  properly  and  justly  limits  the 
liability  of  the  master  to  the  acts  of  his  servant  done 


DEFINITIONS  273 

within  the  scope  of  the  employment.  There  is  still  sub- 
stantial and  just  grounds  for  the  principle  that  the 
master  is  liable  for  the  wrongful  acts  of  his  servant.  No 
liability,  arises  against  the  master  for  the  wrongful  acts 
of  his  servant  unless  the  servant  has  perpetrated  an 
injury  upon  either  the  person  or  property  of  another. 
Nichols  was  the  servant  of  the  plaintiff  when  he  made 
the  alteration  of  the  note.  But  did  he  inflict  any  injury 
upon  the  property  of  the  defendant?  Certainly  not.  The 
injury,  if  any,  was  inflicted  by  the  servant  upon  the 
property  of  his  own  master,  and  not  upon  the  property  of 
the  defendants.  *  *  *  The  principle  that  the  master 
is  liable  for  the  tortious  acts  of  his  servant  committed  in 
the  line  of  the  employment  has  no  application  to  the  facts 
of  this  case,  for  no  injury  was  done  to  the  defendant's 
property. ' ' 

Question  163:  (1.)  What  were  the  facts  in  this  case,  the 
question  presented  and  the  Court 's  decision  ? 

(2.)  What  is  the  nature  of  the  duties  that  make  one  an  agent  ? 
a  servant? 

(3.)  For  what  purpose  was  Nicholas,  an  agent,  and  for  what 
a  servant  in  this  case  ? 

Sec.  125.    Kinds  of  Agents. 

(Note:  Agents  may  be  divided  into  those  who  are  general 
and  special.  A  general  agent  is  one  who  has  an  authority  to 
transact  all  the  business  of  a  principal  or  all  business  of  some 
particular  kind,  as  to  manage  his  granary.  His  authority  is 
broad  and  general  in  its  scope  and  carries  with  it  the  implied 
and  apparent  power  to  do  all  things  incidental  and  necessary  and 
such  as  are  usual.  A  special  agent  is  appointed  to  do  some  par- 
ticular thing.  Agents  may  be  also  classified  as  those  who  are 
not  professional  and  those  who  are,  the  latter  including,  brokers, 
factors,  auctioneers  and  attorneys  at  law.) 


CHAPTER    TWENTY 
CAPACITY  TO  ACT  AS  PRINCIPAL  OR  AGENT 

A.  Capacity  to  act  as  principal.  B.  Capacity  to  act  as  agent. 

A.    Capacity  to  Act  as  Principal. 


126.  In  general.  §  128.  Insane  persons. 

127.  Minors.  §  129.  Corporations. 


Sec.  126.    In  General. 

Case  No.  164.  Greenwood  v.  Spring,  54  Barb.  (N.  Y.) 
375. 

James,  J. :    "'•     *     * 

''A  person  who  is  of  capacity  sufficient  to  do  an  act 
himself  may  do  it  by  an  attorney     *     *     *." 

Question  164:    State  the  above  rule. 

(Note :  Generally  speaking  one  may  do  by  agent  what  he  may 
do  in  his  own  person.  This  of  course  has  some  limitations.  Pub- 
lie  policy  forbids  some  acts  to  be  done  other  than  in  person,  as 
to  vote  at  public  elections,  to  marry,  etc.  So  duties  done  by  one 
under  contract  may  expressly  or  impliedly  be  forbidden  to  be 
done  except  in  person.  Most  duties  undertaken  by  agents  can 
not  be  delegated  to  others  as  we  will  notice  later.) 

274 


CAPACITY  275 

Sec.  127.   Minors. 

(See  case  2,  supra.) 

Sec.  128.    Insane  Persons. 

Case  No.  165.    Blinn  v.  Schwartz,  177  N.  Y.  252. 

Facts:  Suit  in  ejectment  brought  by  Blinn  against 
Julia  Schwartz  to  set  aside  a  deed  alleged  to  have  been 
delivered  and  the  proceeds  thereof  received  under  cer- 
tain powers  of  attorney  executed  while  plaintiff  was  in- 
sane, though  he  was  never  legally  adjudged  insane,  and 
Julia  Schwartz  denies  that  she  had  knowledge  of  the 
insanity. 

It  is  Claimed  that  by  facts,  the  statement  of  which  we 
may  here  omit,  Blinn,  after  recovering  his  sanity  rati- 
fied what  his  agent  may  have  done  in  his  behalf.  No 
offer  to  return  the  consideration  held  by  Julia  Schwartz 
has  been  made. 

Point  Involved:  What  is  the  legal  effect  of  the  at- 
tempted appointment  of  an  agent  by  an  insane  person? 

Vann,  J. :  "  The  deed  in  question  and  both  powers  of 
attorney  were  executed  by  the  plaintiff  when  he  was  of 
unsound  mind  and  incapable  of  attending  to  his  affairs, 
as  the  jury  might  have  found.     *     *     * 

"•  *  *  The  evidence  warrants  the  conclusion  that 
the  plaintiff  ratified  the  act  of  his  agent  as  well  as  his 
own  with  reference  to  the  deed  under  consideration,  pro- 
vided the  deed  and  powers  of  attorney  were  not  abso- 
lutely void  but  merely  voidable.     *     *     * 

"Using  the  term  in  its  exact  sense  and  limiting  it  to 
the  parties  themselves,  a  void  contract  is  binding  upon 
neither  and  cannot  be  ratified.  Even  if  ratified  in  form 
by  both,  it  would  be  a  new  contract  and  would  take  effect 
only  from  the  date  of  the  attempt  at  ratification.  A 
voidable  contract  on  the  other  hand  binds  one  party  but 
not  the  other,  who  may  ratify  or  rescind  at  pleasure. 


276  AGENCY 

(Here  the  Court  cites  numerous  authorities.) 
"We  think  the  rule  laid  down  by  these  cases  is  sound 
and  in  the  interest  of  those  afflicted  with  disease  of  mind. 
The  deed  of  a  lunatic  is  not  void,  in  the  sense  of  being  a 
nullity,  but  has  force  and  effect  until  the  option  to  declare 
it  void,  is  exercised.  The  right  of  election  implies  the 
right  to  ratify  it  and  it  may  be  greatly  to  the  interest  of 
the  insane  person  to  have  that  right.  *  *  *  Upon  the 
record  before  us,  therefore,  even  if  the  plaintiff  was  in- 
sane at  the  date  of  the  deed,  there  was  no  error  in  direct- 
ing a  verdict  for  the  defendants.     *     *     *  " 

Question  165:  State  the  power  of  the  insane  person  to  appoint 
an  agent. 

Sec.  129.    Corporations. 

(Note :  A  corporation  can  act  only  by  agent.  It  may  appoint 
agents  to  do  those  things  which  its  charter  by  express  provision 
or  by  fair  implication  gives  it  power  to  do.  See  the  cases  on 
corporations.) 

B.    Capacity  to  Act  as  Agent. 

Sec.  7.    The  Rule  Stated 

Ca«e  No.  166.    Lyon  &  Co.  v.  Kent,  45  Ala.  656. 

Peters,  J. :  * '  *  *  *  Any  one,  except  a  lunatic,  im- 
becile, or  child  of  tender  years,  may  be  an  agent  for  an- 
other. It  is  said  by  an  eminent  author  and  jurist,  that 
'it  is  by  no  means  necessary  for  a  person  to  be  sui  juris, 
or  capable  of  acting  in  his  or  her  own  right,  in  order  to 
qualify  himeslf  or  herself  to  act  for  others.  Thus,  for 
example,  monks,  infants,  femes  covert,  persons  attainted, 
outlawed  or  excommunicated,  villeins  and  aliens  may  be 
agents  for  others.'  Story's  Agency,  6,  7,  9.  So,  a  slave, 
who  is  homo  non  civilis,  a  person  who  is  but  little  above  a 
mere  brute  in  legal  rights  may  act  as  the  agent  of  his 


CAPACITY  277 

owner  or  his  hirer.     Powell  v.  The  State,  27  Ala.  51; 
Stanley  v.  Nelson,  28  Ala.  514." 

Question  166:  (1.)  State  in  your  own  words  the  rule  as  to 
capacity  to  be  agent. 

(2.)  State  your  explanation  of  the  fact  that  it  takes  less  legal 
capacity  to  be  an  agent  than  to  be  a  principal. 


CHAPTER    TWENTY-ONE 
THE  AUTHORITY  CONFERRED  BY  PRIOR  ACT 

§  130.  In  general.  §  131.  The  form  of  the  appointment. 

Sec.  130.    In  General. 

Case  No.  167.  Central  Trust  Co.  v.  Bridges,  57  Fed. 
753. 

Facts:  Proceedings  to  foreclose  a  mortgage  on  the 
railroad  property.  Certain  creditors  intervene  to  estab- 
lish mechanic's  liens  under  a  section  of  a  statute  giving 
principal  contractors  a  mechanic's  lien.  To  come  within 
this  section  of  the  statute  the  creditor  must  show  that 
he  contracted  with  the  owner  (or  the  owner's  agent)  and 
not  with  an  independent  contractor.  One  Eager  in  this 
case  had  contracts  with  the  company  for  the  construction 
of  the  work  and  it  was  with  Eager  that  the  intervening 
creditors  dealt.  They  claim  that  Eager  was  an  agent 
of  the  company,  and  not  an  independent  contractor,  and 
hence  that  they  were  direct  contractors  with  the  company 
through  its  agent.  Eager  did  not,  however,  make  any  con- 
tracts in  the  name  of  the  company,  and  the  contracting 
parties  dealt  with  him  and  made  no  inquiry  into  his  real 
relationship  with  the  company. 

Point  Involved:  That  one  will  not  be  deemed  as  the 
principal  of  another  in  the  other  *s  contracts  with  third 
persons,  except  upon  facts  showing,  either  that  he  had 
actually  conferred  authority  upon  the  agent,  or  that  he 
had  apparently  done  so. 

278 


APPOINTMENT  279 

Taft,  J. :  ' '  *  *  *  The  theory  upon  which  the  master 
and  the  learned  Court  below  held  that  all  the  intervening 
petitioners  dealt  directly  with  the  Knoxville  Southern 
Railroad  Company  as  principal  contractors  was  that 
Eager  was  an  agent  of  the  railroad  company  in  making 
the  contracts.  One  may  be  liable  for  the  acts  of  another 
as  his  agent  on  one  of  two  grounds :  first,  because  by  his 
conduct  or  statements  he  has  held  the  other  out  as  his 
agent;  or,  second,  because  he  has  actually  conferred  au- 
thority on  the  other  to  act  as  such.  The  master  reported 
to  the  Court  below  that  in  no  case  did  Eager,  under  or  in 
the  name  of  the  Knoxville  Southern  Railroad  Company, 
make  any  contract  with  any  one  doing  work  or  furnishing 
material  for  the  road ;  that  the  men  who  contracted  with 
Eager  knew  very  little  of  Eager,  saw  him  only  occasion- 
ally, made  no  inquiry  into  his  real  relation  to  the  com- 
pany, what  interest  he  had  in  it,  or  how  he  obtained  money 
to  carry  on  the  work.  In  substance,  the  master  reported 
that  the  intervening  petitioners  believed  they  were  deal- 
ing with  Eager  as  principal  contractor.  The  proof  fully 
sustains  this  conclusion. 

"It  follows,  necessarily,  that  Eager  was  not  the  agent 
of  the  company  in  contracting  with  the  petitioners  for  the 
construction  of  the  road  unless  the  company  had  in  fact 
conferred  authority  upon  him  to  act  as  its  agent  in  the 
matter.  An  agency  is  created — authority  is  actually  con- 
ferred— very  much  as  a  contract  is  made,  i.  e.,  by  an 
agreement  between  the  principal  and  agent  that  such  a 
relation  shall  exist.  The  minds  of  the  parties  must  meet 
in  establishing  the  agency.  The  principal  must  intend 
that  the  agent  shall  act  for  him,  and  the  agent  must  in- 
tend to  accept  the  authority  and  act  on  it,  and  the  inten- 
tion of  the  parties  must  find  expression  either  in  words 
or  conduct  between  them.     *     *     * 

"•  *  *  In  the  case  at  bar,  the  master  fully  admits 
there  was  no  holding  out  of  agency  in  Eager  by  the  com- 
pany. His  finding  that  an  agency  in  fact  .existed  rests 
simply  on  the  influence  which  Eager  had  over  the  com- 
pany and  not  in  the  intention  of  either  that  Eager  should 

/ 


280  AGENCY 

act  as  its  agent  in  the  construction  of  the  road,  and  his 
conclusion  is  reached  in  the  face  of  the  fact  which  he 
fully  admits,  that  they  both  intended  Eager  to  be  an  inde- 
pendent contractor.  The  master's  conclusion  cannot  be 
supported.     *     *     •" 

Question  167:  "What  would  it  have  been  necessary  for  the 
claimants  to  show  in  this  case  in  order  to  establish  that  Eager 
could  bind  the  company  as  its  agent  ? 

(Note:  We  will  notice  hereafter  that  the  actual  conferring 
of  the  authority  may  be  done  by  previous  appointment  or  by 
ratification.  But  in  either  case  the  authority  of  the  agent  must 
be  in  some  way  traced  back  to  the  principal's  acts  or  statements.) 

Sec.  131.    The  Form  of  Appointment. 

(a)  As  required  by  the  statute  of       (b)  To   execute    instrument    under 
frauds.  seal. 

(a)    As  Required  by  the  Statute  of  Frauds. 

(See  the  statute  as  set  out  as  Case  No.  84,  Division  1, 
Contracts.) 

(Note :  The  original  statute  of  frauds  required  contracts  for 
the  sale  of  lands  to  be  in  writing.  But  the  appointment  of  the 
agent  to  contract  for  the  sale  of  such  lands  did  not  have  to  be  in 
writing.  Hence,  if  he  was  really  appointed,  although  by  oral  ap- 
pointment, and  the  contract  made  by  him  for  the  sale  of  the  land 
was  in  writing,  it  was  enforceable.  (Johnson  v.  Lodge,  17  111. 
433.)  But,  now,  some  states  provide  that  the  authority  to  sell 
real  estate,  must  be  conferred  in  writing.  See  Kozel  v.  Dearlove, 
144  111.  23.     See  also  Hawkins  v.  McGroarty,  post.) 

See  also  Case  No.  98,  supra. 

(b)    To  Execute  Contracts  Under  Seal. 

Case  No.  168.  Hanford  v.  McNair,  9  Wend.  (N.  T.) 
54. 

Facts:  Suit  on  contract  under  seal  executed  by  an  agent 
who  was  not  authorized  under  seal  to  make  the  contract. 


APPOINTMENT  281 

Sutherland,  J. :  "It  is  an  insuperable  objection  to  the 
plaintiff's  recovery  in  this  action,  that  no  competent  au- 
thority from  the  defendant  to  Bush  is  shown  to  execute 
the  covenant  on  which  the  suit  is  found.  An  agent  cannot 
bind  his  principal  by  deed  [instrument  under  seal]  un- 
less he  has  authority  by  deed  to  do  so.  The  only  excep- 
tion to  the  rule  that  the  authority  to  execute  a  deed  must 
be  by  deed,  is  where  the  agent  or  attorney  fixes  the  seal 
of  the  principal  in  his  presence  and  by  his  direction. 


Question  168:  "What  was  the  rule  as  announced  in  this  case 
(being  the  common  law  rule  as  to  the  requisite  character  of  an 
authority  to  execute  an  instrument  under  seal)  ? 

(Note :  This  rule  would  not  apply  in  states  in  which  the  char- 
acter of  an  instrument  under  seal  has  been  destroyed  by  legisla- 
tion. Mary  modern  cases  also  hold  that  where  an  agent  is  ap- 
pointed by  appointment  not  under  seal  to  execute  a  contract  not 
under  seal,  his  addition  of  a  seal  may  be  treated  as  a  superfluity 
and  the  contract  regarded  as  an  unsealed  agreement. 

An  agent  need  not  have  authority  in  writing  to  execute  a  con- 
tract in  writing,  unless  in  some  particular  cases,  the  local  statute 
requires  it.) 


CHAPTER    TWENTY-TWO 
THE  AUTHORITY  CONFERRED  BY  RATIFICATION 

§  132.  Ratification  defined.  §  137.  Ratification    of   part   ratifies 

§  133.  Appearance  of  agency  for  ex-  all.     Retaining  benefits  as 

isting    principal    necessary.  ratification. 

§  134.  What  acts  can  be  ratified.  §  138.  Silence  as  ratification. 

§  135.  Formalities  of  ratification.  §  139.  Suit  as  ratification. 

§  136.  Knowledge  of  facts  by  prin-  §  140.  The  effect  of  ratification, 
cipal  as  essential  to  ratifi- 
cation. 

Sec.  132.    Ratification  Denned. 

(Note:  Ratification  may  be  defined  as  a  conferring  of  au- 
thority upon  the  agent  by  the  principal,  after  the  agent,  having 
neither  actual  nor  apparent  authority  but  purporting  to  have, 
and  believed  by  the  third  party  to  have,  has  by  an  act  in  the 
principal's  name,  attempted  to  bind  the  principal.  It  makes  the 
principal  liable  as  though  authority  had  been  previously  con- 
ferred. It  applies:  (1)  where  the  agent  had  no  authority,  or 
(2)  had  authority  to  some  extent  but  acted  in  excess  thereof. 
See  next  sections  for  the  essential  elements  in  ratification  and 
effect  of  ratification,  and  see  next  case  [remarks  of  Lord  Mac- 
Naghten]  for  a  judicial  definition.) 

Sec.  133.    Appearance  of  Agency  from  Existing  Prin- 
cipal Necessary. 

Case  No.  169.  Keighley,  Maxstead  &  Co.  v.  Durant, 
L.  R.  1901,  A.  C.  240. 

Facts:  Roberts,  a  corn  merchant  at  Wakefield,  having 
authority  to  buy  grain  for  Keighley,  Maxstead  &  Co.  at 
a  certain  price,  contracted  in  his  own  name  and  appar- 

282 


RATIFICATION  283 

ently  his  own  behalf  to  buy  grain  from  Durant,  a  corn 
merchant  in  London,  at  a  price  for  which  he  had  no  au- 
thority to  buy  grain  for  K.,  M.  &  Co.  The  next  day  K.,  M. 
&  Co.  agreed  with  Roberts  to  take  this  grain  with  him  on 
joint  account.  Roberts  and  K.,  M.  &  Co.  having  failed  to 
take  delivery  of  the  grain,  were  sued. 

Point  Involved :  Whether  if  A  makes  in  his  own  name 
and  apparently  in  his  own  behalf,  a  contract  with  B,  and 
C  afterwards  contracts  with  A  to  take  the  benefit  of  that 
contract,  B  can  hold  C  as  a  party  to  the  contract  ? 

Eael  of  Halsbuky,  L.  C. :  ' '  My  Lords,  there  are  here  no 
facts  really  in  dispute  in  this  case.  Roberts  made  a  contract 
on  his  own  behalf  and  without  the  authority  of  anybody 
else.  The  contract  was  made  and  the  parties  to  it  ascer- 
tained, and  I  am  of  opinion  that  upon  no  principle  known 
to  the  law  could  the  present  appellants  be  made  parties  to 
that  contract.  They  could,  of  course,  make  another  con- 
tract in  the  same  terms  if  they  pleased,  but  it  would  not  be 
this  contract.  It  is  suggested  by  the  judgment  of  the  Court 
of  Appeal  as  possible  that  what  is  described  as  ratifica- 
tion might  if  the  parties  had  so  pleased,  make  the  con- 
tract, which  was  one  made  between  A  and  B,  to  include 
C,  as  one  of  the  contracting  parties.  I  think  such  a  sug- 
gestion is  contrary  to  all  principle,  and  for  it  there  is 
no  decision  which  calls  for  your  Lordships  to  override  it. 
*  *  *  The  parties  to  the  contract  who  have  already 
bound  themselves  by  it,  are  just  as  much  part  of  the  con- 
tract as  any  other  part  of  the  contractual  obligations  en- 
tered into. 

1 '  I  confess  I  do  not  see  the  relevancy  of  the  argument 
that  the  contract  might  be  made  in  the  name  of  an  un- 
known principal,  and  that  such  principal  may  sue  and  be 
sued,  though  the  name  was  not  given  at  the  time  the  con- 
tract was  made.  The  fact  is  that  in  such  a  case  the 
contract  is  made  by  him,  and  the  disclosure  afterwards 
does  not  alter  or  affect  the  contract  actually  made.  Here 
it  would  alter  the  contract  afterward  and  make  it  a  differ- 
ent contract.     *     *     * ' ' 


284  AGENCY 

Lord  McNaghten:     "My  Lords,  I  am  of  the  same 

opinion. 

t  <  *     *     # 

"As  a  general  rule,  only  persons  who  are  parties  to  a 
contract,  acting  either  by  themselves,  or  by  an  authorized 
agent,  can  sue  or  be  sued  on  a  contract.  A  stranger  can- 
not enforce  the  contract,  nor  can  it  be  enforced  against 
a  stranger.  That  is  the  rule;  but  there  are  exceptions. 
The  most  remarkable  exception,  I  think,  results  from  the 
doctrine  of  ratification  as  established  in  English  law. 
That  doctrine  is  thus  stated  by  Tindall,  C.  J.,  in  Wilson  v. 
Tumman  (1843,  6  M.  &  G.,  at  p.  242) :  'That  an  act  done, 
for  another,  by  a  person  not  assuming  to  act  for  himself, 
but  for  such  other  person,  though  without  any  precedent 
authority  whatever,  becomes  the  act  of  the  principal,  if 
subsequently  ratified  by  him,  is  the  known  and  well  es- 
tablished rule  of  law.  In  that  case  the  principal  is  bound 
by  the  act,  whether  it  be  for  his  detriment  or  disad- 
vantage, and  whether  it  be  founded  on  a  tort  or  on  a 
contract,  to  the  same  effect  as  by,  and  with  all  the  conse- 
quences that  follow  from,  the  same  act  done  by  his  pre- 
vious authority. '  And  so  by  a  wholesome  and  convenient 
fiction,  a  person  ratifying  the  act  of  another,  who  without 
authority,  has  made  a  contract  openly  and  avowedly  on 
his  behalf,  is  deemed  to  be,  though  in  fact  he  was  not  a 
party  to  the  contract.  Does  the  fiction  cover  the  case  of 
a  person  who  makes  no  avowal  at  all,  but  assumes  to  act 
for  himself  and  no  one  else  ?  If  Tindall,  C.  J.  's  statement 
of  the  law  is  accurate,  it  would  seem  to  exclude  the  case 
of  a  person  who  may  intend  to  act  for  another,  but  at  the 
same  time  keeps  his  intention  locked  in  his  own  breast. 

tip  *  *  guj.  0Ugj1|-  the  doctrine  of  ratification  to  be 
extended  to  such  a  case?  On  principle  I  should  say  cer- 
tainly not.     *     *     *" 

Question  169:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  An  undisclosed  principal  can  be  sued  by  the  third 
person.    Why  was  this  not  such  a  case  ? 


Ratification  285 

(3.)  What  was  Chief  Justice  Tindall's  definition  of  ratifica- 
tion? 

(4.)  A,  of  the  firm  of  A  and  B,  bought  goods  in  his  own  name 
and  without  B's  knowledge,  expecting  to  use  such  goods  in  an- 
other partnership  to  be  formed  with  C.  The  firm  of  A  and  B  did 
not  dissolve  as  expected,  and  A  and  B  afterwards  used  the  goods 
so  bought  by  A.  Is  B  liable  in  a  suit  by  A's  vendor  for  the 
price  of  the  goods  ?    ( 13  Manitoba  L.  Rep.  147,  2  Brit.  R.  C.  254. ) 

Case  No.  170.    Watson  v.  Swann,  11  C.  B.  N.  S.  756  at 

p.  771. 

Willes,  J. :  ' '  *  *  *  to  entitle  a  person  to  sue  upon 
a  contract,  it  must  clearly  be  shown  that  he  himself  made 
it,  or  that  it  was  made  on  his  behalf  by  an  agent  au- 
thorized to  act  for  him  at  the  time  or  whose  act  has  been 
subsequently  ratified  and  adopted  by  him.  The  law  obvi- 
ously requires  that  the  person  for  whom  the  agent  pro- 
fesses to  act  must  be  a  person  capable  of  being  ascertained 
at  the  time.  It  is  not  necessary  that  he  should  be  named ; 
but  there  must  be  such  a  description  of  him  as  shall 
amount  to  a  reasonable  designation  of  the  person  in- 
tended to  be  bound  by  the  contract.  *  *  *  The  doc- 
trine of  ratification  shall  have  reference  to  the  time  when 
the  act  was  done  which  the  supposed  principal  attempts 
to  ratify.     *     *     •*■ 

Question  170:  When  one  is  held  as  principal,  what  condition 
is  necessary  as  to  his  identification  and  existence  at  the  time  the 
contract  was  made  ? 

(Note :  It  must  not  be  understood  that  a  principal  cannot  sue 
or  be  sued  unless  he  was  named  or  ascertainable  when  the  agent 
made  the  contract,  for  undisclosed  principals  may  sue  or  be  sued, 
as  hereafter  shown.  But  in  such  cases  there  is  no  ratification  in- 
volved. The  principal,  though  undisclosed,  had  actually  con- 
ferred authority. 

Though  a  principal  not  in  existence  or  not  ascertainable  at 
the  time  the  agent  acted,  cannot  ratify,  yet  he  may  adopt  the 
act  by  taking  the  benefits  thereof  or  otherwise.  This  principle 
of  adoption  has  its  greatest  application  in  case  of  newly  formed 


286  AGENCY 

corporations,  which  often  become  liable  for  the  acts  of  promoters 
or  other  parties,  done  prior  to  the  corporate  existence.  An 
adoption,  as  distinguished  from  a  ratification,  is  a  new  contract.) 

Sec.  134.    What  Acts  Can  Be  Ratified. 

Case  No.  171.  Zottman  v.  San  Francisco,  20  California, 
96. 

Facts:  The  City  of  San  Francisco  was  given  power 
by  its  charter  to  make  public  improvements,  but  was  re- 
quired in  making  such  improvements  to  publish  the  ordi- 
nance directing  the  same,  and  to  let  the  work  to  the 
lowest  bidder  after  advertising  for  bids  in  the  public 
journals.  Zottman  and  another  entered  into  a  contract 
with  the  city  providing  for  the  erection  of  an  iron  fence, 
this  contract  being  pursuant  to  due  procedure.  After- 
wards, a  special  committee  of  the  council,  authorized  to 
accept  this  fence,  decided  that  the  fence  ought  to  have  a 
base  of  stone  and  to  be  painted  and  they  directed  Zottman 
to  do  the  work,  promising  that  the  city  would  pay  for  it. 
All  the  members  of  the  common  council  knew  of  the  extra 
work  and  no  one  disapproved  thereof.  The  city  now  re- 
fuses to  pay  for  the  work  on  the  ground  it  was  not 
properly  authorized. 

Field,  C.  J. :  "As  a  necessary  consequence  flowing 
from  these  views,  a  contract  not  made  in  the  prescribed 
mode  cannot  be  affirmed  and  ratified  in  disregard  of  that 
mode  by  any  subsequent  action  of  the  corporate  authori- 
ties, and  a  liability  be  thereby  fastened  upon  the  corpora- 
tion. Ratification  is  equivalent  to  a  previous  authority; 
it  operates  upon  the  contract  in  the  same  manner  as 
though  the  authority  to  make  the  contract  had  existed 
originally.  The  power  to  ratify,  therefore,  necessarily 
supposes  the  power  to  make  the  contract  in  the  first  in- 
stance ;  and  the  power  to  ratify  in  a  given  mode  supposes 
the  power  to  contract  in  the  same  way.  Therefore,  where 
the  charter  of  a  city  authorizes  a  sale  of  city  property 
only  at  public  auction,  a  sale  not  thus  made  is  from  its 


RATIFICATION  287 

very  nature  incapable  of  ratification,  because  it  could  not 
have  been  otherwise  made  originally.  So  where  the  char- 
ter authorizes  a  contract  for  work  to  be  given  only  to  the 
lowest  bidder,  after  notice  of  the  contemplated  work  in 
the  public  journals,  a  contract  made  in  any  other  way — 
that  is,  given  to  any  other  person  than  such  lowest  bid- 
der— cannot  be  subsequently  affirmed.  Were  this  not  so, 
the  corporate  authorities  would  be  able  to  do  retroac- 
tively what  they  are  prohibited  from  doing  directly. ' ' 

Question  171:  State  the  facts  in  this  case,  the  question  pre- 
sented and  the  Court's  decision. 

(Note :  See  for  discussion  this  specific  topic,  Dillon  on  Munic- 
ipal Corporations,  5th  Ed.,  Sec.  797.) 

Case  No.  172.    Henry  v.  Heeb,  114  Ind.  275. 

Facts:  Suit  by  Heeb  against  Henry  and  others  on  cer- 
tain promissory  notes,  one  of  which  the  defendant  Henry 
denies  having  made  or  authorized,  but  to  which  his  name 
appears  to  have  been  placed  as  his  signature.  The  Court 
instructed  the  jury  that  if  they  found  from  the  evidence 
that  Henry  after  having  obtained  full  knowledge  upon  the 
subject  of  whether  or  not  he  executed  the  note,  ratified 
and  confirmed  the  same  and  promised  to  pay  it,  he  would 
be  liable  for  the  amount  thereof.  The  giving  of  this  in- 
struction is  now  complained  of  on  appeal. 

Point  Involved:    Can  a  forgery  be  ratified? 

Mitchell,  C.  J.  "*  *  *  The  appellant  contends 
that  a  person  whose  name  has  been  forged  to  a  note  can- 
not ratify  or  adopt  the  criminal  act,  so  as  to  become 
bound,  unless  facts  have  intervened  which  create  an  es- 
toppel, and  preclude  him  from  setting  up  as  a  defense 
that  his  signature  is  not  genuine.  There  appears  to  be 
an  irreconcilable  conflict  in  the  decisions  of  the  courts 
of  last  resort  on  this  question.  Thus  in  Wellington  v. 
Jackson,  121  Mass.  157,  the  supreme  judicial  court  of 
Massachusetts,  following  its  earlier  decisions,  held  that 
one  whose  signature  had  been  forged  to  a  promissory 


288  AGENCY 

note,  who  yet,  with  knowledge  of  all  the  circumstances, 
and  intending  to  be  bound  by  it,  acknowledged  the  sig- 
nature, and  thus  assumed  the  note  as  his  "own,  was  bound 
to  the  same  extent  as  if  the  note  had  been  signed  by  him 
originally,  without  regard  to  whether  or  not  his  acknowl- 
edgment amounted  to  an  estoppel  in  pais:  Greenfield 
Bank  v.  Crafts,  4  Allen,  447 ;  Bartlett  v.  Tucker,  104  Mass. 
336  (341) ;  6  Am.  Eep.  240.  To  the  same  effect  is  Hefner 
v.  Vandolah,  62  111.  483;  14  Am.  Eep.  106;  Fitzpatrick  v. 
School  Commissioners,  7  Humph.  224 ;  46  Am.  Dec.  76. 

"There  are  other  cases  which,  while  seeming  to  lend 
support  to  the  doctrine  that  a  forged  signature  may  be 
ratified,  nevertheless  turn  upon  the  proposition  that  the 
holder  of  the  note  had  in  some  way  acted  in  reliance 
upon  the  promise  or  admission  of  the  person  whose  name 
appeared  on  the  note,  or  that  the  latter  had  received  or 
participated  in  the  consideration  for  which  the  note  had 
been  given,  and  was  therefore  estopped  to  deny  the  genu- 
ineness of  his  signature.  Still  other  decisions  depend 
upon  principles  which  distinguish  them  from  cases  in- 
volving the  doctrine  of  ratification  or  adoption  of  forged 
instruments  purely:  Casco  Bank  v.  Keene,  53  Me.  103; 
Forsyth  v.  Day,  46  Id.  176;  Corser  v.  Paul,  41  N.  H.  24; 
77  Am.  Dec.  753;  Woodruff  v.  Munroe,  33  Md.  146;  Union 
Bank  v.  Middelbrook,  33  Conn.  95;  Livings  v.  Wiler,  32 
111.  387 ;  Commercial  Bank  v.  Warren,  15  N.  Y.  577 ;  Crout 
v.  DeWolf,  1  E.  I.  393;  McKenzie  v.  British  Linen  Co.,  L. 
E.  6  App.  Cas.  82;  Forsythe  v.  Banta,  5  Bush,  548. 

"It  is  a  well-established  rule  of  law  that  if  one,  not 
assuming  to  act  for  himself,  does  an  act  for  or  in  the  name 
of  another  upon  the  assumption  of  authority  to  act  as  the 
agent  of  the  latter,  even  though  without  any  precedent 
authority  whatever,  if  the  person  in  whose  name  the  act 
was  performed  subsequently  ratifies  or  adopts  what  has 
been  so  done,  the  ratification  relates  back  and  supplies 
original  authority  to  do  the  act.  In  such  a  case  the  prin- 
cipal is  bound  to  the  same  extent  as  if  the  act  had  been 
done  in  the  first  instance  by  his  previous  authority,  and 
this  is  so  whether  the  act  be  detrimental  to  the  principal 


RATIFICATION  289 

or  to  his  advantage,  or  whether  it  be  founded  in  tort  or 
contract.  The  reason  is,  that  there  was  an  open  assump- 
tion to  act  as  the  agent  of  the  party  who  subsequently- 
adopted  the  act.  The  agency  having  been  knowingly 
ratified,  the  ratification  becomes  equivalent  to  original 
authority:  Wilson  v.  Tumman,  6  Man.  &  GK  236;  Smith 
v.  Tramel,  68  Iowa,  488.  So,  if  a  contract  be  voidable  on 
account  of  fraud  practiced  on  one  party,  or  if  for  any 
reason  it  might  be  avoided,  yet  if  the  party  having  the 
right  to  avoid  the  contract,  being  fully  informed,  delib- 
erately confirms  or  ratifies  it,  even  though  this  be  done 
without  a  new  consideration,  and  after  acts  have  been 
done  which  would  have  released  the  person  affected,  the 
party  thus  ratifying  is  thereby  precluded  from  obtain- 
ing the  relief  he  otherwise  might  have  had :  Williams  v. 
Boyd,  75  Ind.  286. 

''The  ratification  or  adoption  of  a  forged  instrument, 
or  of  a  contract  which  is  prohibited  by  law,  or  made  in 
violation  of  a  criminal  statute,  involves  altogether  differ- 
ent principles.  One  who  commits  the  crime  of  forgery 
by  signing  the  name  of  another  to  a  promissory  note  does 
not  assume  to  act  as  the  agent  of  the  person  whose  name 
is  forged.  Upon  principle,  there  would  seem  to  be  no 
room  to  apply  the  doctrine  of  ratification  or  adoption  of 
the  act  in  such  a  case.  Where  the  act  done  6onstitutes  a 
crime,  and  is  committed  without  any  pretense  of  au- 
thority, it  is  difficult  to  understand  how  one  who  is  in  a 
sense  the  victim  of  the  criminal  act  may  adopt  or  ratify 
it,  so  as  to  become  bound  by  a  contract  to  which  he  is  to 
all  intents  and  purposes  a  stranger,  and  which  as  to  him 
was  conceived  in  a  crime  and  is  totally  without  considera- 
tion. As  has  been  well  said,  it  is  impossible  in  such  a 
case  to  attribute  any  motive  to  the  ratifying  party  but 
that  of  concealing  the  crime  and  suppressing  the  prosecu- 
tion; 'for  why  should  a  man  pay  money  without  consid- 
eration when  he  himself  had  been  wronged,  unless 
constrained  by  a  desire  to  shield  the  guilty  party?' 

"The  distinction  made  in  many  well-considered  cases 
seems  to  be  this :  Where  the  act  of  signing  constitutes  the 


290  AGENCY 

crime  of  forgery,  while  the  person  whose  name  has  been 
forged  may  be  estopped  by  his  admissions,  upon  which 
others  may  have  changed  their  relations  from  pleading 
the  truth  of  the  matter  to  their  detriment,  the  act  from 
which  the  crime  springs  cannot,  upon  considerations  of 
public  policy,  be  ratified  without  a  new  consideration  to 
support  it :  Shisler  v.  Vandike,  92  Pa.  St.  447 ;  37  Am. 
Eep.  702;  McHugh  v.  County  of  Schuylkill,  67  Pa.  St. 
391;  Workman  v.  Wright,  33  Ohio  St.  405;  31  Am.  Eep. 
546,  and  note ;  Owsley  v.  Philips,  78  Ky.  517 ;  Brooke  v. 
Hook,  24  L.  T.  34;  2  Daniel  on  Negotiable  Instruments, 
1351, 1353 ;  2  Eandolph  on  Commercial  Paper,  sec.  629. 

"In  a  case  of  a  known  or  conceded  forgery,  we  are 
unable  to  discover  any  principle  upon  which  a  subsequent 
promise  by  the  person  whose  name  was  forged  can  be  held 
binding  in  the  absence  of  an  estoppel  in  pais,  or  without 
a   new   consideration  for   the   promise:    Workman   v. 

Wright,  supra;  Owsley  v.  Philips,  supra. 

<<#     #     #  >> 


Question  172:  (1.)  What  is  the  difference  in  the  character  of 
an  act  constituting  a  forgery  and  the  execution  of  an  act  in  be- 
half of  another  without  authority  ? 

(2.)  How  does  the  Indiana  Court  indicate  that  one  whose 
name  has  been  forged,  can  render  himself  liable  on  the  forged 
instrument  ? 

(3.)     What  distinction  is  said  to  be  taken  in  many  cases? 

(4.)     Is  this  distinction  taken  in  all  courts? 

(5.)  In  every  state  what  result  does  not  follow  where  there  is 
an  adoption  or  ratification  of  a  forged  instrument  by  the  party 
whose  name  is  forged  ? 

Case  No.  173.     Dempsey  v.  Chambers,  154  Mass.  330. 

Facts:  Suit  is  to  recover  damages  for  the  breaking  of 
a  plate  glass  window.  The  glass  was  broken  by  the  neg- 
ligence of  one  McCullock,  while  delivering  some  coal 
which  had  been  ordered  of  the  defendant  by  the  plaintiff. 
It  was  found  by  the  trial  court  as  a  fact  that  McCullock 
was  not  the  defendant's  servant  when  he  delivered  the 
coal  and  broke  the  window,  but  that  the  defendant  after- 


RATIFICATION  291 

wards  ratified  the  delivery  of  the  coal.    Judgment  in  the 
trial  court  for  plaintiff.    Defendant  appeals. 

Point  Involved:  Whether  an  unauthorized  tort  com- 
mitted as  a  part  of  an  act  done  on  behalf  and  in  the  name 
of  another,  but  not  at  the  time  authorized  by  another  can 
be  ratified  and  whether  it  is  so  by  the  ratification  of  the 
act  of  which  it  is  a  part. 

Holmes,  J.:    "•     *     * 

"It  is  hard  to  explain  why  a  master  is  liable  to  the 
extent  that  he  is  for  the  negligent  acts  of  one  who  at  the 
time  really  is  his  servant,  acting  within  the  general  scope 
of  his  employment.  Probably  master  and  servant  are 
'  famed  to  be  all  one  person, '  but  a  fiction  which  is  an  echo 
of  the  patria  potestas  and  of  the  English  frank-pledge. 
Byington  v.  Simpson,  134  Mass.  169,  170,  45  Am.  Kef. 
314;  Fitz.  Abr.,  tit.  Corone,  fil.  428.  Possibly  the  doc- 
trine of  ratification  is  another  aspect  of  the  same  tradi- 
tion. The  requirement  that  the  act  should  be  done  in  the 
name  of  the  ratifying  party,  looks  that  way :     *     *     * 

1 '  Doubts  have  been  expressed,  which  we  need  not  con- 
sider, whether  this  doctrine  applied  to  a  case  of  a  bare 
personal  tort :  Adams  v.  Freeman,  9  Johns.  117, 118 ;  An- 
derson and  Warburton,  J  J.,  in  Bishop  v.  Montague, 
Cro.  Eliz.  824.  If  a  man  assaulted  another  in  a  street 
out  of  his  own  head,  it  would  seem  rather  strong  to  say 
that  if  he  merely  called  himself  my  servant,  and  I  after- 
wards assented,  without  more,  our  mere  words  woul  1 
make  me  a  party  to  the  assault,  *  *  *  Perhaps  the 
application  of  the  doctrine  would  be  avoided  on  the 
ground  that  the  facts  did  not  show  an  act  done  for  the 
defendant's  benefit :    Wilson  v.  Barker,  1  Nev.  &  M.  409; 

4  Barn.  &  Adol.  614,  et  seq. ;  Smith  v.  Lozo,  42  Mich.  6. 

*     #     # 

"But  the  language  generally  used  by  judges  and  text- 
writers,  and  such  decisions  as  we  have  been  able  to  find, 
is  broad  enough  to  cover  a  case  like  the  present  when 
the  ratification  is  established :  (citing  numerous  authori- 
ties). 


292  AGENCY 

"The  question  remains  whether  the  ratification  is  es- 
tablished. As  we  understand  the  bill  of  exceptions,  Mc- 
Cullock  took  on  himself  to  deliver  the  defendant's  coal 
for  his  benefit  and  as  his  servant,  and  the  defendant 
afterwards  assented  to  McCullock's  assumption.  The 
ratification  was  not  directed  specifically  to  McCullock's 
trespass,  and  that  act  was  not  for  the  defendant's  benefit 
if  taken  by  itself,  but  it  was  so  connected  with  McCul- 
lock's employment  that  the  defendant  would  have  been 
liable  as  master  if  McCullock  really  had  been  his  servant 
in  delivering  the  coal.  We  have  found  hardly  anything 
in  the  books  dealing  with  the  precise  case,  but  we  are 
of  opinion  that  consistency  with  the  whole  course  of  au- 
thority requires  us  to  hold  that  the  defendant's  ratifica- 
tion of  the  employment  established  the  relation  of  master 
and  servant  from  the  beginning,  with  all  its  incidents, 
including  the  anomalous  liability  for  his  negligent  acts : 
See  Coomes  v.  Houghton,  102  Mass.  211,  213,  214;  Cooley 
on  Torts,  128,  129.  The  ratification  goes  to  the  relation 
and  establishes  it  ah  initio.  The  relation  existing,  the 
master  is  liable  for  torts  which  he  has  not  ratified 
specifically  just  as  he  is  for  those  which  he  has  not 
commanded,  and  as  he  may  be  for  those  which  he  has  ex- 
pressly forbidden     *     *     *." 

Question  173:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  this  case. 

(2.)  A  purporting  to  represent  P,  sells  B  a  quantity  of  goods. 
He  is  guilty  of  fraud  in  making  the  sale.  P  recognizes  the  or- 
der and  supplies  the  goods.  Is  P  liable  in  damages  for  A's 
fraud?   Under  what  circumstances? 

Sec.  135.    Formalities  of  Ratification. 

Case  No.  174.    Hawkins  v.  McGroarty,  110  Mo.  546. 

Facts:     See  the  first  paragraph  of  the  opinion. 

Point  Involved:  Generally,  whether  if  the  law  requires 
a  certain  formality  in  the  appointment  or  authorization 
of  the  agent,  the  act  of  an  agent  done  without  such  for- 


RATIFICATION  293 

mality,  may  be  ratified  by  the  principal  with  any  less 
formality  than  that  required  by  such  law.  Specifically, 
whether  the  requirements  of  the  Missouri  statute  of 
frauds  requiring  the  authorization  of  an  agent  to  sell 
lands  to  be  in  writing,  affords  a  defense  to  a  principal 
who  is  sued  on  the  theory  of  verbal  ratification. 

Bkace,  J.:  ''By  an  act  approved  March  19,  1887,  the 
statute  of  'frauds  and  perjuries,'  section  2513,  Revised 
Statutes,  1879,  was  amended  by  adding  the  following 
clause  to  that  section:  'And  no  contract  for  the  sale  of 
lands  made  by  an  agent  shall  be  binding  upon  the  princi- 
pal unless  such  an  agent  is  authorized  in  writing  to  make 
said  contract.'  This  is  an  action  in  the  nature  of  a  bill 
in  equity  to  specifically  enforce  the  written  contract  of 
an  agent  in  the  name  of  his  principal  for  a  sale  of  land 
made  by  the  agent,  not  within  the  terms  of  such  agent's 
written  authority,  upon  the  ground  of  a  verbal  ratifica- 
tion of  such  sale  by  the  principal  after  he  was  informed 
thereof.  In  the  facts  of  the  case  there  is  no  element  of 
equitable  estoppel.  Plaintiff's  evidence  tended  at  most 
only  to  prove  that  the  defendant,  when  informed  by 
letter  of  the  sale,  did  not  manifest  to  the  agent  any  dis- 
approbation thereof,  but  directly  thereafter  sold  to  an- 
other person. 

' '  The  trial  court  ruled  that  the  written  authority  must 
authorize  the  agent  to  make  the  contract  which  he  does 
make,  in  order  to  bind  the  princpal  and  unless  it  does  so 
the  ratification  thereof  must  be  in  writing  to  bind  him, 
citing  Story  on  Agency  (9  ed.)  sec.  242,  and  Dispatch 
Line  v.  Mfg.  Co.,  12  N.  H.  205,  37  Am.  Dec.  203,  in  which 
it  was  held  that  'a  ratification  of  an  act  done  by  one  as- 
suming to  be  an  agent  relates  back,  and  is  equivalent  to 
a  prior  authority.  When,  therefore,  the  adoption  of  any 
particular  form  or  mode  is  necessary  to  confer  the  au- 
thority in  the  first  instance,  there  can  be  no  valid  ratifica- 
tion except  in  the  same  manner. ' 

"At  common  law,  where  a  contract  is  required  to  be 
under  seal,  a  ratification  must  also  be  under  seal.     1 


294  AGENCY 

American  &  Eng.  Encyclopedia  of  Law  436;  Story  on 
Agency,  sec.  49,  and  authorities  in  note  3;  Mechem  on 
Agency,  sec.  137,  and  authorities  note  6,  same  page.  And 
upon  the  same  principle  the  last  author,  stating  the  gen- 
eral rule,  says,  'If,  therefore,  sealed  authority  was  in- 
dispensable, sealed  ratification  must  be  shown;  and  if 
written  authority  was  required,  written  ratification  must 
appear.'    Sec.  136. 

"In  Pollard  &  Co.  v.  Gibbs,  55  Ga.  45,  it  was  held  that 
'where  a  crop  lien  for  fertilizers  is  executed  by  an  agent 
who  acts  without  authority  from  the  principal,  and  in  his 
absence,  and  the  lien  is  under  seal,  proof  of  the  ratifica- 
tion by  the  principal  must  be  in  writing  and  under  seal. ■ 

"In  Ragan  v.  Chenault,  78  Ky.  456,  under  a  statute 
which  provided  that  'no  person  shall  be  bound  as  the 
surety  of  another  by  the  act  of  an  agent,  unless  the  au- 
thority of  the  agent  is  in  writing,  signed  by  the  princi- 
pal ; '  it  was  held  that  subsequent  verbal  ratification  would 
not  bind  the  surety;  that  to  so  hold  would  be  to  defeat 
the  object  of  the  statute. 

"In  Palmer  v.  Williams,  24  Mich.  328,  under  a  statute 
of  frauds,  the  same  as  our  own,  before  the  adoption  of 
the  amendment  set  out,  it  was  held  that  'ratification,  if 
not  made  in  writing,  with  due  knowledge  of  the  circum- 
stances, could  only  be  made  out  by  such  conduct  on  the 
part  of  the  principal  as  would  equitably  estop  him  from 
insisting  on  his  rights.  And  such  an  estoppel  would  not 
be  made  out  unless  defendants  had  been  so  far  misled 
by  him  to  their  own  prejudice,  that  justice  demanded 
their  protection  against  him. 

"  '*  *  *  In  the  absence  of  any  conduct  designed  or 
calculated  to  mislead,  mere  delay  will  not  deprive  an 
owner  of  his  estate,  legal  or  equitable,  until  barred  by 
some  clear  rule  of  equity.' 

"There  is  no  such  bar  in  the  facts  of  this  case.  Hie- 
mans  was  authorized  in  writing  by  the  defendant  Maull 
to  sell  his  property  for  $7,400.  On  the  ninth  of  July  he 
sold  to  the  plaintiff  for  $1,300  who  paid  Hiemans  $40 
earnest  money,  and  received  from  him  a  receipt  for  that 


RATIFICATION  295 

amount  on  account  of  the  sale.  Hiemans  says  he  im- 
mediately wrote  Maull  a  letter,  and  that  Maull  called  the 
next  day,  when  he  explained  the  sale  to  him  and  he  mani- 
fested no  disapprobation.  Maull  sold  to  his  co-defendant, 
McGroarty,  on  the  evening  of  the  eleventh.  He  testifies 
that  he  did  not  see  Hiemans  until  after  this  sale,  and  did 
not  receive  his  letter  until  the  evening  of  the  day  he  sold 
to  McGroarty,  and  did  not  understand  from  its  contents 
that  his  agent  had  actually  effected  a  sale.  However 
the  truth  of  this  matter  may  be,  he  never  received  from 
his  agent  the  earnest  money  of  the  plaintiff;  in  a  day 
or  two,  he  took  the  check  he  received  from  McGroarty 
for  $50,  paid  by  him  as  earnest  money,  to  Hiemans  (who 
collected  it),  and  directed  conveyances  to  be  prepared  to 
McGroarty,  which  was  accordingly  done,  the  balance  of 
the  purchase  money  paid,  and  the  deeds  delivered  on  the 
twenty-second  of  July.  In  the  meantime  he  never,  by 
any  act  or  word  of  his,  gave  the  plaintiff  to  understand 
for  a  moment  that  he  had  authorized  or  ratified  the  sale 
made  by  Hiemans  to  him;  but  from  the  first  approach 
to  him,  made  by  the  plaintiff,  to  secure  a  performance  of 
the  contract,  steadily  refused  to  recognize,  ratify  or  con- 
firm the  same. 

"  Under  the  statute,  as  it  now  reads,  requiring  written 
authority  for  the  contract  the  agents  make,  there  can 
be  no  question  it  would  seem,  that  there  is  no  such  ratifi- 
cation here  as  could  by  any  process  of  reasoning,  bind 
the  defendant  Maull  to  specifically  perform  the  contract 
in  question,  which  his  agent  Hiemans  had  no  written  au- 
thority to  make. 

Question  174:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  At  common  law  what  was  the  rule  as  to  the  ratification 
of  a  sealed  instrument? 

Sec.  136.    Knowledge  of  Facts  by  Principal  as  Essen- 
tial to  Ratification. 

Case  No.  175.     Combs  v.  Scott,  94  Mass.  493. 

Facts:    Suit  brought  to  recover  the  price  agreed  to 


296  AGENCY 

be  paid  to  plaintiff  for  his  services  in  obtaining  two  re- 
cruits for  enlistment  in  army,  as  part  of  the  quota  of  the 
town  of  Hawley. 

Defendants  had  charge  of  a  fund  for  the  purpose  stated 
and  employed  one  Dunton  as  their  agent,  who  in  turn 
employed  plaintiff,  agreeing  to  pay  $5.50  for  each  re- 
cruit that  he  should  obtain  to  the  number  of  two  or 
three  and  that  he  did  obtain  two  recruits.  Defendants 
contest  Dunton 's  authority  to  employ  plaintiff  as  a 
subagent  or  make  such  a  contract  in  their  behalf  and 
plaintiff  claims  ratification.  The  Court  instructed  the 
jury  to  the  effect  that  there  was  no  ratification  of  the 
agent's  act  if  there  was  a  material  mistake  of  fact,  " un- 
less it  [the  mistake]  arose  from  the  negligence  of  the 
defendants. ' '  Plaintiff  had  a  verdict  and  defendants  ap- 
peal. 

Point  Involved:  Whether  the  principal  who  is  claimed 
to  have  ratified  a  past  and  completed  act  on  the  part  of 
his  agent  can  claim  a  mistake  of  fact  to  avoid  such  ratifi- 
cation when  he  neglected  to  ascertain  the  true  facts  that 
might  have  been  made  known  to  him  by  reasonable  dili- 
gence. 

Bigelow,  C.  J. : "  *  *  *  The  general  rule  is  perfectly 
well  settled,  that  a  ratification  of  the  unauthorized  acts  of 
an  agent,  in  order  to  be  effectual  and  binding  on  the  prin- 
cipal, must  have  been  made  with  a  full  knowledge  of  all 
material  facts,  and  that  ignorance,  mistake  or  misappre- 
hension of  any  of  the  essential  circumstances  relating  to 
the  particular  transaction  alleged  to  have  been  ratified 
will  absolve  the  principal  from  all  liability  by  reason  of 
any  supposed  adoption  of  or  assent  to  the  previously  un- 
authorized acts  of  an  agent.  We  know  of  no  qualification 
of  this  rule  such  as  was  engrafted  upon  it  in  the  instruc- 
tions given  to  the  jury  in  the  present  case.  Nor,  after 
considerable  research,  have  we  been  able  to  find  that  such 
qualification  has  ever  been  recognized  in  any  approved 
text  writer  or  adjudicated  case.  And,  upon  considera- 
tion, it  seems  to  us  to  be  inconsistent  with  sound  principle. 


RATIFICATION  297 

"  Ratification  of  a  past  and  completed  transaction,  into 
which  an  agent  has  entered  without  authority,  is  a  purely 
voluntary  act  on  the  part  of  the  principal.  No  legal  ob- 
ligation rests  upon  him  to  sanction  or  adopt  it.  No  duty 
requires  him  to  make  any  inquiries  concerning  it.  "Where 
there  is  no  legal  obligation  or  duty  to  do  an  act,  there  can 
be  no  negligence  in  an  omission  to  perform  it.  The  true 
doctrine  is  well  stated  by  a  learned  text  writer:  'If  I 
make  a  contract  in  the  name  of  a  person  who  has  not  given 
me  an  authority,  he  will  be  under  no  obligation  to  ratify 
it,  nor  will  he  be  bound  to  the  performance  of  it. '  1  Liver- 
more  on  Agency,  44.  See  also  Paley  on  Agency,  171, 
Note  o.  Whoever,  therefore,  seeks  to  procure  and  rely 
on  a  ratification  is  bound  to  show  that  it  was  made  under 
such  circumstances  as  in  law  to  be  binding  on  the  princi- 
pal, especially  to  see  to  it  that  all  material  facts  were 
made  known  to  him.  The  burden  of  making  inquiries  and 
ascertaining  the  truth  is  not  cast  on  him  who  is  under  no 
legal  obligation  to  assume  a  responsibility,  but  rests  on 
the  party  who  is  endeavoring  to  obtain  a  benefit  or  ad- 
vantage for  himself.  This  is  not  only  just,  but  it  is  prac- 
ticable. The  needful  information  or  knowledge  is  always 
within  the  reach  of  him  who  is  either  party  or  privy  to  a 
transaction  which  he  seeks  to  have  ratified,  rather  than  of 
him  who  did  not  authorize  it,  and  to  the  details  of  which 
he  may  be  a  stranger. 

'  '  We  do  not  mean  to  say  that  a  person  can  be  wilfully 
ignorant  or  purposely  shut  his  eyes  to  means  of  informa- 
tion within  his  own  possession  and  control,  and  thereby 
escape  the  consequences  of  a  ratification  of  unauthorized 
acts  into  which  he  has  deliberately  entered ;  but  our  opin- 
ion is  that  ratification  of  an  antecedent  act  of  an  agent 
which  was  unauthorized  cannot  be  held  valid  and  binding, 
where  the  person  sought  to  be  charged  has  misappre- 
hended or  mistaken  material  facts,  although  he  may  have 
wholly  omitted  to  make  inquiries  of  other  persons  con- 
cerning them,  and  his  ignorance  and  misapprehension 
might  have  been  enlightened  and  corrected  by  the  use  of 
diligence  on  his  part  to  ascertain  them.    The  mistake  at 


298  AGENCY 

the  trial  consisted  in  the  assumption  that  any  such  dili- 
gence was  required  of  the  defendants.  On  this  point,  the 
instructions  were  stated  in  a  manner  which  may  have  led 
the  jury  to  misunderstand  the  rights  and  obligations  of 
the  parties.    Exceptions  sustained." 

Question  175:  What  was  the  instruction  given  by  the  lower 
court  in  this  case  ?  Did  the  upper  court  sustain  the  instruction  ? 
"What  qualification  did  the  Court  suggest?  Was  the  act  in  this 
case  by  the  agent  and  by  the  third  party  completely  executed? 
If  it  had  not  been  do  you  think  that  could  make  a  difference  ? 

Case  No.  176.  Ehrmantraut  v.  Robinson  et  al.,  52 
Minn.  333. 

Facts:  Suit  for  rent  of  a  certain  hall  for  lodge  pur- 
poses used  by  Nora  Grove,  No.  23,  U.  A.  0.  D.,  an  unin- 
corporated association  of  which  defendants  were  mem- 
bers. In  May,  1886,  Robinson  and  Larson,  two  of  the  de- 
fendants, and  directors  of  the  lodge,  without  authority, 
procured  the  lease  in  question.  In  July,  1886,  the  mem- 
bers of  the  association,  including  the  defendants,  entered 
into  possession  of  the  premises,  and  continued  to  hold 
meetings  there  until  some  time  in  the  fall  when  the  so- 
ciety disbanded.  The  lease  was  never  acted  on  by  the 
society  at  any  of  its  meetings,  and  some  of  the  defendants 
never  knew  what  the  terms  of  the  lease  were ;  but  they  did 
know  that  some  lease  had  been  entered  into. 

Point  Involved:  Whether  continuing  to  receive  the 
benefits  under  an  executory  contract  made  by  an  agent, 
of  the  existence  of  which  contract  one  knows,  but  as  to 
whose  contents  he  chooses  to  remain  in  ignorance,  is  rati- 
fication of  the  unknown  terms. 

Mitchell,  J. :    ' '  *     *     * 

"Of  course,  a  benevolent  or  social  club  or  association 
of  this  kind  is  not  a  partnership,  in  any  proper  sense  of 
that  term.  The  members  are  liable,  if  liable  at  all,  for 
the  acts  of  their  associations,  on  the  ground  of  principal 


RATIFICATION  299 

and  agent,  and  not  of  partnership.  Hence,  it  is  undoubt- 
edly true  that  only  those  members  who  authorized  or  sub- 
sequently ratified  the  acts  of  these  trustees  in  taking  this 
lease  would  be  bound  by  it.  Bates,  Partn.  75;  Lindl. 
Partn.  50 ;  Story,  Partn.  144 ;  Flemyng  v.  Hector,  2  Mees. 
&  W.  172;  Ash  v.  Guie,  97  Pa.  St.  493. 

1 '  But  it  is  true  that  all  the  members  who  subsequently 
ratified  the  act  are  liable,  and  in  our  opinion  the  act  of 
Hervin  and  Wilson  amounted  to  a  ratification. 

"It  is  sometimes  said  that,  to  constitute  a  ratification 
of  an  unauthorized  act  of  an  agent,  the  principal  must 
have  had  knowledge  of  all  the  material  facts.  As  to  a 
past  and  completed  transaction,  this  would  be  generally 
true,  but  there  are  many  cases  where  the  conduct  of  the 
principal  may  amount  to  a  ratification,  although  he  may 
not  know  all  the  facts  as  to  the  unauthorized  act  of  the 
agent  in  his  behalf.  He  may  ratify  by  voluntarily  assum- 
ing the  risk  without  inquiry,  or  he  may  deliberately  ratify 
upon  such  knowledge  as  he  possesses,  without  caring  for 
more.  Lewis  v.  Bead,  13  Mees.  &  W.  834 ;  Kelley  v.  New- 
buryport  &  A.  H.  B.  Co.,  141  Mass.  496  (6  N.  E.  Bep.  745.) 

' '  Where,  as  in  the  present  case,  the  defendants  Hervin 
and  Wilson  had  notice  that  an  unauthorized  contract  had 
been  made  in  their  behalf  for  the  use  of  these  premises, 
it  was  their  duty,  before  accepting  its  benefits,  to  ascertain 
what  the  terms  of  that  contract  were.  By  going  into  pos- 
session, and  enjoying  the  use  of  the  premises,  without  any 
attempt  to  ascertain  the  terms  of  the  lease  under  which 
they  entered,  they  must  be  held  to  have  deliberately  in- 
tended to  take  the  risk  of  ratifying  upon  such  knowledge 
as  they  had." 

Question  176:  (1.)  State  the  above  case,  showing  whether 
the  Court's  holding  is  consistent  with  the  rule  that  ratification 
is  predicated,  upon  knowledge  of  the  facts  by  the  ratifier. 

(2.)  Why  was  it  material  in  this  case  to  consider  whether 
or  not  the  lodge  was  a  partnership  ?  Why  in  your  opinion  was 
it  not  a  partnership? 


300  AGENCY 

Sec.  137.    Ratification  of  Part  Ratifies  All — Retaining 
Benefits  as  Ratification. 


Case  No.  177.     Eberts  v.  Selover,  44  Mich.  519. 

Facts:    The  facts  appear  in  the  opinion.    - 

Point  Involved:    Whether  a  principal  whose  agent  has 

exceeded  his  authority  can  adopt  and  ratify  part  of  such 

act  and  reject  the  remainder. 

Cooley,  J. :  "This  is  an  action  brought  to  recover  the 
subscription  price  of  a  local  history.  The  subscription 
was  obtained  by  an  agent  of  the  plaintiffs,  and  defendant 
signed  his  name  to  a  promise  to  pay  ten  dollars  on  the 
delivery  of  the  book.  This  promise  was  printed  in  a  little 
book,  made  use  of  for  the  purpose  of  obtaining  such  sub- 
scriptions, and  on  the  opposite  page,  in  sight  of  one  sign- 
ing, was  a  reference  to  'rules  to  agents,'  printed  on  the 
first  page  of  the  book.  One  of  these  rules  was  that  'no 
promise  or  statement  made  by  an  agent  which  interferes 
with  the  intent  of  printed  contract  shall  be  valid,'  and 
patrons  were  warned  under  no  circumstances  to  permit 
themselves  to  be  persuaded  into  signing  the  subscription 
unless  they  expected  to  pay  the  price  charged. 

' '  From  the  evidence  it  appears  that  when  Schenck,  the 
agent,  solicited  his  subscription  the  defendant  was  not  in- 
clined to  give  it,  but  finally  told  the  agent  he  would  take 
it  provided  his  fees  in  the  office  of  justice,  then  held  by 
him,  which  should  accrue  from  that  time  to  the  delivery 
of  the  book  should  be  received  as  an  equivalent.  The 
agent  assented,  and  defendant  signed  the  subscription,  re- 
ceiving the  same  time  from  the  agent  the  following  paper : 

"  'Coldwater,  April  29,  78. 

1 '  '  Mr.  Isaac  M.  Selover  gives  his  order  for  one  copy  of 
our  history,  for  which  he  agrees  to  pay  on  delivery  all 
the  proceeds  of  his  office  as  justice  from  now  till  the  de- 
livery of  said  history. 

"  'Eberts  &  Abbott,  per  Schenck.' 

"The  plaintiffs  claim  that  the  history  was  duly  deliv- 
ered, and  they  demanded  the  subscription  price,  repudi- 


RATIFICATION  301 

ating  the  undertaking  of  the  agent  to  receive  anything 
else,  as  being  in  excess  of  his  authority  and  void.  The  de- 
fendant relies  on  that  undertaking,  and  has  brought  into 
court  $4.27  as  the  amount  of  his  fees  as  justice  for  the 
period  named.  This  statement  of  facts  presents  the  ques- 
tions at  issue  so  far  as  they  concern  the  merits. 

"It  may  be  perfectly  true,  as  the  plaintiffs  insist,  that 
this  undertaking  of  the  agent  was  in  excess  of  his  au- 
thority; that  the  defendant  was  fairly  notified  by  the 
entries  in  the  book  of  that  fact,  and  that  consequently  the 
plaintiffs  were  not  bound  by  it,  unless  they  subsequently 
ratified  it.  Unfortunately  for  their  case,  the  determina- 
tion that  the  act  of  the  agent  in  giving  this  paper  was 
void  does  not  by  any  means  settle  the  fact  of  defendant's 
liability  upon  the  subscription. 

"The  plaintiffs'  case  requires  that  they  shall  make  out 
a  contract  for  the  purchase  of  their  book.  To  do  this,  it 
is  essential  that  they  show  that  the  minds  of  the  parties 
met  on  some  distinct  and  definite  terms.  The  subscrip- 
tion standing  alone  shows  this,  for  it  shows,  apparently, 
that  defendant  agreed  to  take  the  book  and  pay  therefor 
on  delivery  the  sum  of  ten  dollars.  But  the  contempo- 
raneous paper  given  back  by  the  agent  constitutes  a  part 
of  the  same  contract,  and  the  two  must  be  taken  and  con- 
sidered together.  Bronson  v.  Green,  Walk.  Co.  56 ;  Dud- 
geon v.  Haggart,  17  Mich.  275.  Taking  the  two  together 
it  appears  that  the  defendant  never  assented  to  any  pur- 
chase except  upon  the  terms  that  the  plaintiffs  should 
accept  his  justice  fees  for  the  period  named  in  full  pay- 
ment for  the  book.  If  this  part  of  the  agreement  is  void, 
the  whole  falls  to  the  ground,  for  defendant  has  assented 
to  none  of  which  this  is  not  a  part.  When  plaintiffs  dis- 
covered what  their  agent  had  done,  two  courses  were 
open  to  them ;  to  ratify  his  contract,  or  to  repudiate  it. 
If  they  ratified  it,  they  must  accept  what  he  agreed  to 
take.  If  they  repudiated  it,  they  must  decline  to  deliver 
the  book  under  it.  But  they  cannot  ratify  so  far  as  it 
favors  them  and  repudiate  so  far  as  it  does  accord  with 
their  interests.     They  must  deal  with  the  defendant's 


302  AGENCY 

undertaking  as  a  whole  and  cannot  make  a  new  contract 
by  a  selection  of  stipulations  to  which,  separately,  he 
never  assented.' ' 

Question  177 :  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  the  above  case. 

Case  No.  178.  Krider  v.  Trustees  of  Western  College, 
31  Iowa,  547. 

Facts:  Suit  for  foreclosure  of  a  mortgage,  covering 
the  college  grounds.  Defense  that  the  mortgage  was 
made  without  authority  by  Weaver,  as  president  and 
agent  of  the  college.  Weaver  was  authorized  to  borrow 
money  for  the  college  but  not  to  make  the  mortgage  in 
question.    Further  facts  are  given  in  the  opinion. 

Point  Involved:  That  the  ratification  of  one  part  of  an 
entire  transaction,  with  knowledge  of  the  facts,  ratifies 
the  entire  transaction;  that  receiving  benefits  (with 
knowledge  of  the  facts)  of  an  act  done  under  excess  of 
authority  is  ratification  of  the  entire  transaction. 

Milleb,  J.:  "As  before  stated,  the  jury  found  that 
Weaver  was  authorized  to  borrow  money  on  behalf  of  the 
corporation,  and  that  the  board  of  trustees  ratified  his 
action  in  giving  the  note  sued  on  and  in  the  creation  of 
the  debt  evidenced  thereby;  and  there  is  no  room  for 
controversy  that  they  did  so  with  full  knowledge  of  the 
fact  that  Weaver  had  also,  at  the  same  time,  executed  the 
mortgage  on  the  college  grounds  to  secure  this  same  debt ; 
that  the  borrowing  of  the  money  for  the  college  and  the 
making  of  the  note  and  mortgage  constituted  but  one 
transaction. 

"The  law  is  well  settled  that  the  principal  cannot,  of 
his  own  mere  authority,  without  the  consent  of  the  other 
party,  ratify  a  transaction  by  his  agent  in  part,  and  re- 
pudiate it  as  to  the  rest.  He  must  either  adopt  it  in 
whole  or  not  at  all.  And  hence,  the  general  rule  is  de- 
duced, that  where  a  ratification  is  established,  as  to  a 
part,  it  operates  as  a  confirmation  of  the  whole  of  that 


RATIFICATION  303 

particular  transaction  of  the  agent.  Story  on  Agency, 
250,  and  cases  cited  in  notes. 

"In  this  case  the  board  of  trustees  send  their  presi- 
dent out,  clothed  with  authority  to  borrow  money  on  their 
credit.  He  does  so;  executes  a  promissory  note  in  the 
name  of  the  board  of  trustees  as  evidence  of  the  loan,  and 
to  secure  the  payment  thereof,  according  to  the  terms  of 
the  note,  executes  a  mortgage  upon  property  belonging 
to  the  corporation,  whose  agent  he  is;  and  afterward 
they,  with  full  knowledge  of  all  the  facts,  ratify  the  crea- 
tion of  the  debt  and  the  giving  of  the  note.  By  these  acts, 
without  more,  they  have,  so  far  as  they  had  the  power, 
confirmed  the  entire  transaction,  including  the  making  of 
the  mortgage. 

1 '  These  conclusions  are  drawn  from  the  findings  of  the 
jury,  the  correctness  of  which  appellee  does  not  question. 
But,  upon  the  evidence  in  the  case,  we  are  of  the  opinion 
that  there  was  never,  in  fact,  any  repudiation,  by  the 
board  of  trustees,  of  the  making  of  the  mortgage  by  their 
president.  On  the  other  hand  it  is  quite  conclusive  to 
our  minds,  that  the  execution  of  the  mortgage  was  ex- 
pressly ratified,  and  that  the  answer  of  the  jury  to  the 
sixth  interrogatory  is  against  the  evidence.' ' 

Question  178:  What  were  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case? 

(Note:  See  also,  Dempsey  v.  Chambers,  supra.) 

Sec.  138.    Silence  as  Ratification. 

Case  No.  179.     Ward  v.  Williams,  26  111.  447. 

Point  Involved:  Whether  merely  remaining  silent 
(i.  e.  receiving  no  benefits  and  expressing  no  dissent) 
when  one  learns  that  an  agent  has  done  an  unauthorized 
act  in  his  behalf,  is  ratification. 

Caton,  C.  J.:    "*     *     * 

"The  counsel  in  their  arguments  agree  upon  the  cor- 


304  AGENCY 

rect  principle  of  law  as  to  the  ratification  of  unauthorized 
acts,  done  by  one  in  the  name  of  another.  In  general 
where  an  agent  is  authorized  to  do  an  act,  and  he  tran- 
scends his  authority,  it  is  the  duty  of  the  principal  to  re- 
pudiate the  act  as  soon  as  he  is  fully  informed  of  what 
has  been  done  in  his  name,  by  the  agent,  else  he  will  be 
bound  by  the  act  as  having  ratified  it  by  implication: 
but  where  a  stranger  in  the  name  of  another  does  an 
unauthorized  act,  the  latter  need  take  no  notice  of  it  al- 
though informed  of  the  act  thus  done  in  his  name,  and 
he  shall  only  be  bound  by  an  affirmative  ratification. ' ' 

Question  179:  "What  is  the  rule  as  to  silence  amounting  to 
ratification  as  announced  in  the  above  case  ? 

Sec.  139.    Suit  as  Ratification. 

Case  No.  180.     Bailey  v.  Partridge,  134  111.  188. 

Facts:  Plaintiff's  traveling  salesman  sold  the  samples 
with  which  he  had  been  provided,  and  received  the  price 
thereof,  appropriating  it  to  his  own  use.  Plaintiff  con- 
tended he  had  no  authority  to  make  the  sale,  but  brought 
suit  for  the  price  thereof  based  on  the  sale. 

Point  Involved:  Whether  suit  on  an  unauthorized  con- 
tract made  by  an  agent  is  a  ratification  of  such  contract. 

Mr.  Justice  Craig  :  "But  it  may  be  said  that  Holmes 
was  not  empowered  by  the  plaintiffs  to  sell  the  goods, 
— that  he  merely  held  the  samples  as  a  means  to  solicit 
orders.  A  sufficient  answer  to  this  position  is,  that  the 
acts  of  plaintiffs  since  the  sale  may  be  regarded  as  ratifi- 
cation. Where  the  owner  whose  goods  have  been  sold  with- 
out authority,  sues  the  purchaser  for  the  amount  of  the 
contract  price  for  which  the  goods  were  sold,  the  sale,  al- 
though unauthorized,  will  be  regarded  as  ratified.  ( Story 
on  Agency,  sec.  259;  2  Greenleaf  on  Evidence,  sec.  66.) 
The  later  authority  says :  '  Thus,  if  goods  are  sold  with- 
out authority,  and  the  owner  receives  the  price,  or  pur- 
sues his  remedy  for  it  by  action  at  law  against  the  pur- 


RATIFICATION  305 

chaser,  or  if  any  other  act  be  done  on  behalf  of  another, 
who  afterwards  claims  the  benefit  of  it,  this  is  a  ratifica- 
tion.'   See,  also,  Peters  v.  Balleston,  3  Pick.  495. 

"In  the  case  under  consideration,  as  soon  as  plaintiffs 
learned  of  the  sale  they  made  out  a  bill  according  to  the 
contract  price,  presented  it  to  the  defendants,  and  de- 
manded payment  for  the  goods.  This  was  followed  by 
the  present  action  in  assumpsit  to  collect  the  amount  for 
which  the  goods  were  sold.  If,  therefore,  Holmes  made 
the  sale  without  direct  authority,  these  acts  of  the  plain- 
tiffs, after  full  knowledge  of  the  sale,  may  be  treated  as 
a  ratification  of  the  sale  made  by  Holmes.  The  case  then 
stands  in  this  position:  Holmes  had  possession  of  the 
goods,  claiming  the  right  to  sell ;  he  called  on  defendants 
and  they  bought  the  goods ;  he  delivered  the  goods,  col- 
lected the  pay,  and  gave  defendants  a  receipt  acknowl- 
edging full  payment.  Plaintiffs  first  deny  authority  to 
sell,  but  by  their  acts  concede  the  power  of  sale,  but  deny 
authority  to  collect  for  the  goods.  This  they  can  not  do. 
The  power  of  sale  or  the  sale  without  authority,  subse- 
quently ratified,  carried  with  it  the  implied  power  to  re- 
ceive payment.  Had  the  sale  been  repudiated  by  the 
plaintiffs,  and  an  action  brought  to  recover  the  goods,  a 
different  question  would  arise.  But  that  course  was  not 
pursued. ' ' 

Question  180:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)     By  what  action  could  the  plaintiffs  have  won?    Why? 

Sec.  140.    The  Effect  of  Ratification. 

(Note :    Ratification  when  established  has  these  results : 
(1.)     It  relates  back  to  the  time  when  the  act  was  done  and 
is  equivalent  to  prior  authority : 

(a)  In  its  effect  between  principal  and  third  person. 

(b)  In  its  effect  between  principal  and  agent. 

(2.)  It  is  irrevocable;  ratification  being  established,  it  can- 
not be  withdrawn  by  the  principal. ) 


PART    VI 

MUTUAL  RIGHTS  AND  DUTIES  OF  PRINCIPAL 
AND  AGENT 


Chapter  Twenty-three. 
Chapter  Twenty-four. 


The  Eights  of  the  Principal 
Against  the  Agent. 

The  Right  of  the  Agent  to  Com- 
pensation and  Damages. 


CHAPTER    TWENTY-THREE 

THE  RIGHTS  OF  THE  PRINCIPAL  AGAINST 
THE  AGENT 


A.  The  agent's  duty  to  exercise  good 

faith  and  protect  the   princi- 
pal's interests. 

B.  The    agent's    duty    to    obey    in- 

structions   and    exercise    pru- 
dence and  skill. 

C.  The  agent's  rights  and  duties  in 


respect  to  delegation  of  au- 
thority and  the  employment 
of  other  agents. 
D.  The  agent's  responsibility  in 
case  of  default  by  the  third 
person  on  the  contract  made 
through  the  agency. 


A.    The  Agent's  Duty  to  Exercise  Good  Faith  and  to 
Protect  the  Principal's  Interests. 


§  141.  The  general  rule. 

§  142.  Agent    as    representative    of 

both  parties  without  their 

consent. 
§  143.  Agent    must    not    deal    with 

himself  without  principal's 

consent. 


§  144.  Agent     must     not     compete 

with  principal. 
§  145.  Agent's    duty    in    regard    to 

personal  behavior. 


306 


MUTUAL  RIGHTS  AND  DUTIES  307 

Sec.  141.    The  General  Rule. 

Case  No.  181.  Keighler  et  al.  v.  Savage  Mfg.  Co.,  12 
Md.  383. 

Facts:  Bill  brought  to  compel  an  accounting  by  de- 
fendants, as  alleged  agents  of  the  complainants,  of  their 
dealings  with  the  complainant's  funds  and  securities,  al- 
leging that  defendants  had  made  secret  profits  and  un- 
authorized uses  of  the  agency. 

Le  Grand,  C.  J. :  (On  appeal  upholding  the  action  of 
the  lower  court  in  granting  complainant  relief.)  "•  *  * 
In  the  final  decision  of  this  case,  the  law  governing  the 
relation  of  principal  and  factor,  is  applied  to  the  deal- 
ings of  the  parties.  What  that  law  is — so  far  as  this  case 
is  concerned — we  shall,  as  concisely  as  may  be,  state. 

"Its  paramount  and  vital  principle  is  good  faith:  with- 
out it  the  relation  of  principal  and  agent  cannot  exist; 
and  so  sedulously  is  this  principle  guarded  that  all  de- 
partures from  it  are  esteemed  frauds  upon  the  confidence 
bestowed.     *     *     *" 

Question  181:  Do  the  principal  and  agent  (after  the  creation 
of  the  agency)  deal  at  "arm's  length"?    What  is  the  rule? 

Sec.  142.    Agent  as  Representative  of  Both  Parties 
Without  Consent  of  Both. 

Case  No.  182.     Gann  v.  Zettler,  3  Geo.  Ap.  589. 

Facts:  The  facts  are  stated  in  the  second  paragraph 
of  the  opinion. 

Point  Involved:  As  a  premise,  whether  it  is  a  breach 
of  duty  for  an  agent  without  the  consent  of  his  principal, 
to  represent  the  other  party  in  the  same  transaction ;  as 
a  result,  whether  the  agent  in  so  acting  forfeits  his  rights 
to  his  fees. 

Powell,  J.:  "It  is  recorded  of  him,  'who  spake  as 
never  man  spake,'  that  seeing  the  multitudes,  he  went  up 


308  AGENCY 

into  a  mountain ;  and  when  he  was  set  his  disciples  came 
unto  him,  and  he  opened  his  mouth  and  taught  them,  say- 
ing *  *  *  'No  man  can  serve  two  masters:  for  either 
he  will  hate  the  one,  and  love  the  other ;  .or  else  he  will 
hold  to  the  one,  and  despise  the  other.'  So,  also,  is  our 
law.  Civil  Code,  sees.  3010,  3011,  3014,  3018.  Whoso- 
ever, having  undertaken  the  service  of  his  master,  coun- 
sels with  another  and  agrees  also  in  those  same  things 
wherewith  he  has  been  trusted,  cannot  claim  the  reward 
promised  by  his  master,  unless  he  makes  it  plain  that 
he  has  not  acted  privily,  but  that  his  master  was  consent^ 
ing  thereto  (citing  cases). 

"In  this  case  a  woman  owning  a  house  placed  it  with 
an  agent,  instructing  him  to  sell  it  for  her  for  $1,500.  A 
man  desiring  to  buy  the  house,  but  not  for  cash,  hired 
this  agent  to  become  also  his  agent  to  buy  it  of  the  woman 
through  other  means,  making  known  to  him  that  he  was 
willing  to  give,  in  exchange  for  the  woman's  house,  a 
piece  of  land  which  he  owned  and  $1,200  in  notes.  The 
agent  not  telling  the  woman  that  he  had  become  the 
agent  of  the  man,  got  from  her  an  agreement  to  take,  in 
exchange  for  her  house,  the  man's  land,  and  notes  for 
$1,000 ;  and  she  therewith  also  consented  that  if  the  agent 
could  get  the  man  to  give  more  than  this  sum,  he  should 
have  it  for  his  pay.  However,  before  the  trade  was 
ended,  the  woman,  having  obtained  knowledge  that  the 
man  had  already  offered  to  give  more  than  the  land  and 
the  $1,000  which  had  not  been  told  her,  put  the  agent  aside 
and  dealt  directly  with  the  man,  to  her  better  advantage. 
The  agent,  learning  of  these  things,  sued  her  for  $200; 
and  the  judge  gave  judgment  in  her  favor. 

"Judgment  affirmed.' \ 

Question  182:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case. 

Case  No.  183.     Rice  v.  Wood,  113  Mass.  133. 
Facts:    This  is  a  suit  by  the  plaintiffs  as  real  estate 
brokers  to  recover  a  commission  from  defendant  for  dis- 


MUTUAL  RIGHTS  AND  DUTIES  309 

posing  of  certain  stocks  in  exchange  for  real  estate.  The 
plaintiffs  were  at  the  same  time  employed  by  certain 
parties  to  sell  or  exchange  their  real  estate.  Through 
the  instrumentality  of  plaintiffs,  an  exchange  was  ef- 
fected. Plaintiffs  were  to  receive  a  commission  from  de- 
fendants, and  also  from  the  owners  of  the  real  estate, 
defendant  knowing  this  at  the  time,  but  the  real  estate 
owners  did  not  know  of  it.  The  defendant  contends  that 
plaintiffs  cannot  recover,  because  they  violated  their 
duties  as  agents  with  the  other  party  to  the  contract,  the 
real  estate  owners. 

Point  Involved:  "Whether  an  agent  employed  by  A  to 
sell  his  property  on  a  commission  who  without  A's 
knowledge  contracts  in  the  same  matter  with  B  to  repre- 
sent and  receive  a  fee  from  B,  who  has  full  knowledge 
of  all  the  facts,  can  recover  his  fee  from  B. 

Devests,  J. :    "  *     *     * 

"If  this  were  an  action  by  the  plaintiffs  against  the 
owner  of  the  real  estate,  for  commissions  earned  in  dis- 
posing thereof,  the  decision  of  this  court  in  Farnsworth 
v.  Hemmer,  1  Allen,  494,  would  be  conclusive  against  the 
claim,  upon  the  ground  that  the  plaintiffs,  if  such  facts 
should  be  proved,  had  entered  into  a  relation  inconsistent 
with  the  confidence  reposed  in  them  by  such  owner,  and 
placed  themselves  in  a  position  antagonistic  to  his  inter- 
ests. This  case  presents,  however,  the  question  whether, 
conceding  that  the  plaintiffs  could  not  recover  their  com- 
missions from  the  owner  of  the  real  estate,  they  may  not 
recover  those  they  claim  to  be  entitled  to  from  the  de- 
fendant, as  he  knew  fully,  at  the  time  of  entering  into  his 
contract,  the  relation  in  which  the  plaintiffs  stood  to  the 
third  party. 

"It  was  the  duty  of  the  plaintiffs  to  get  the  highest 
price  for  the  real  estate  that  could  be  obtained  for  it  in 
the  market ;  while  the  contract  between  the  plaintiffs  and 
the  defendant  was  an  inducement  to  the  plaintiffs  to  effect 
a  sale  to  the  defendant,  even  if  it  was  on  lower  terms  than 
might  have  been  obtained  from   others,  because  they 


310  AGENCY 

thereby  secured  their  commissions  from  both  parties.  It 
was  therefore  an  agreement  which  placed  the  plaintiffs 
under  the  temptation  to  deal  unjustly  with  the  owner  of 
the  real  estate.    Walker  v.  Osgood,  98  Mass.  348. 

"Contracts  which  are  opposed  to  open,  upright  and 
fair  dealing  are  opposed  to  public  policy.  A  contract  by 
which  one  is  placed  under  a  direct  inducement  to  violate 
the  confidence  reposed  in  him  by  another  is  of  this  char- 
acter. *  *  *  No  one  can  be  permitted  to  found  rights 
upon  his  own  wrong,  even  against  another  also  in  the 
wrong.  A  promise  made  to  one  in  consideration  of  doing 
an  unlawful  act,  as  to  commit  an  assault  or  to  practice  a 
fraud  upon  a  third  person,  is  void  in  law ;  and  the  law  will 
not  only  avoid  contracts  the  avowed  purpose  or  express 
object  of  which  is  to  an  unlawful  act,  but  those  made  with 
a  view  to  place,  or  the  necessary  effect  of  which  is  to 
place,  a  person  under  wrong  influences,  and  offer  him  a 
temptation  which  may  injuriously  affect  the  rights  of 
third  persons.  Nor  is  it  necessary  to  show  that  injury 
to  third  persons  has  actually  resulted  from  such  a  con- 
tract, for  in  many  cases  where  it  had  occurred  this  would 
be  impossible  to  be  proved.  The  contract  is  avoided  on 
account  of  its  necessarily  injurious  tendency.  Fuller  v. 
Dame,  18  Pick.  472.     *     *     *" 

Question  183:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  ease,  giving  the  reasons. 

(2.)  A  was  an  expert  judge  of  pianos.  B,  being  about  to 
purchase  a  piano,  requested  A  as  his  friend  and  gratuitously  to 
examine  a  piano  which  C  was  attempting  to  sell  to  B.  C  secretly 
promised  A  a  fee  if  the  piano  was  sold  to  B.  A  believed  the  piano 
a  good  instrument  and  he  recommended  it  and  B  bought  it.  B 
has  never  complained  and  is  entirely  satisfied  with  the  piano. 
A  sues  C  for  the  fee  promised.  Can  he  recover?  (Bollman  v. 
Lewis,  41  Conn.  581.) 

Sec.  143.    Agent  Must  Not  Deal  with  Himself  without 
Principal's  Consent. 

Case  No.  184.    Blank  v.  Aronson,  187  Federal,  241. 


MUTUAL  RIGHTS  AND  DUTIES  311 

Facts:  Suit  in  equity  by  Aronson  against  Blank  to  set 
aside  a  conveyance  by  Aronson.  Aronson  employed 
Blank  to  find  a  purchaser  for  a  tract  of  land  owned  by 
him  in  Barnes  County,  North  Dakota.  Blank  thereupon 
produced  Elmer  W.  Fish,  as  a  proposed  purchaser  at  the 
price  of  $14  per  acre,  which  Blank  represented  was  all 
that  he  could  get.  On  December  3,  1906,  a  contract  of 
sale  was  entered  into  between  Aronson  and  Fish  for  that 
price,  Fish  agreeing  to  pay  $2,300  in  cash,  and  $2,000 
more  on  or  before  December  1,  1907,  when  the  deed  was 
to  be  given,  and  to  give  his  notes,  secured  by  mortgage, 
for  the  balance.  On  November  1,  1907,  Blank  appeared 
to  be  Fish 's  assignee  of  the  right  to  purchase,  and  Aron- 
son accordingly  made  the  deed  to  him.  Aronson  now 
charges  that  when  Blank  acted  as  his  agent,  he  had  a 
personal  interest  in  the  purchase  which  was  concealed 
from  Aronson. 

Point  Involved:  Whether  an  agent  employed  to  sell 
real  estate  has  the  right  without  the  consent  of  the  princi- 
pal, to  purchase  it  himself. 

Adams,  Cibcuit  Judge:     "•     *     * 

"'•  *     If  the  charge  found  in  the  bill  is  sustained 

by  the  proof,  the  sale  ought  to  be  annulled.  There  is  no 
principle  of  law,  equity  or  morals  more  universally  recog- 
nized than  this :  that  an  agent  must  be  faithful  to  his 
principal  in  the  discharge  of  the  duty  which  he  under- 
takes. He  cannot  purchase  for  himself  that  which  his 
duty  requires  him  to  sell  for  his  principal.  'Emptor  emit 
quam  minimo  potest,  venditor  vendit  quam  maximo  po- 
test.' His  own  interest  is  a  constantly  acting  force  in- 
ducing him  to  unfaithfulness  in  the  discharge  of  the  duty 
undertaken  by  him.  As  said  by  the  Supreme  Court  of 
the  United  States  in  Michoud  v.  Girod,  4  How.  503,  554, 
L.  Ed.  1076: 

"  'The  general  rule  stands  upon  our  great  moral  obli- 
gation to  refrain  from  placing  ourselves  in  relations 
which  ordinarily  excite  a  conflict  between  self  interest 
and  integrity.     *     *     *     It  therefore  prohibits  a  party 


312  AGENCY 

from  purchasing  on  his  own  account  that  which  his  duty 
or  trust  requires  him  to  sell  on  account  of  another.' 

"  These  salutary  principles  have  been  repeatedly  laid 
down  and  enforced  by  this  court.     *     *     * 

[The  court  here  considers  the  evidence.] 

1 '  On  these  findings  it  is  clear  that  defendant  while  act- 
ing as  the  paid  agent  of  complainant  to  serve  him  faith- 
fully in  finding  a  purchaser  for  his  land,  had  a  secret 
agreement  or  understanding  with  Fish,  with  whom  he 
negotiated  the  sale,  and  who  ostensibly  became  the  pur- 
chaser, that  he  the  defendant  should  have  a  substantial 
interest  in  the  trade.  This,  under  the  authorities  cited 
entitled  complainant  to  rescind  the  sale,  and  to  a  restora- 
tion of  the  title  upon  complying  with  the  established  rule 
in  equity  to  place  the  defendant  in  statu  quo.     *     *     * 

1 '  But  it  is  contended  that  complainant  did  not  promptly 
and  unevasively  rescind  the  sale  after  being  advised  of 
defendant's  fraud.  The  well  settled  rule  on  this  subject 
is  that  one  entitled  to  rescind  a  contract  on  the  ground  of 
fraud  must  announce  his  purpose  to  do  so  promptly,  un- 
conditionally and  unevasively  upon  the  discovery  of  the 
fraud  practiced  upon  him     *     *     *. 

"The  learned  trial  judge  *  *  *  found  distinctly 
this  to  have  been  done.     *     *     *  " 

Question  184 :  State  the  facts,  the  question  presented  and  the 
Court 's  decision  in  the  above  case. 

Sec.  144.    Agent  Must  Not  Compete  with  Principal. 

Case  No.  185.     Deringer  v.  Meyer,  42  Wis.  311. 

Facts:  For  the  year  1875  the  plaintiff  was  employed 
by  defendant  to  superintend  defendant 's  business  at  New 
Cassel,  Wisconsin,  consisting  in  conducting  a  lumber  yard 
and  buying  and  selling  wood.  Plaintiff  while  in  defend- 
ant's service  engaged  in  a  wood  business  on  his  own  ac- 
count, selling  in  the  same  market.  Defendant  discharged 
plaintiff  in  June,  1875.  Plaintiff  sues  for  damages  for 
wrongful  discharge. 


MUTUAL  RIGHTS  AND  DUTIES  313 

Lyon,  J.:  ''It  is  well  settled  that  if  a  servant,  with- 
out the  consent  of  his  master,  engage  in  any  employment 
or  business,  for  himself  or  another,  which  may  tend  to 
injure  his  master's  trade  or  business,  he  may  lawfully 
be  discharged  before  the  expiration  of  the  agreed  term 
of  service.  This  is  so  because  it  is  the  duty  of  the  ser- 
vant, not  only  to  give  his  time  and  attention  to  his  mas- 
ter's business,  but,  by  all  lawful  means  at  his  command, 
to  protect  and  advance  his  master 's  interests.  But  when 
the  servant  engages  in  a  business  which  brings  him  in 
direct  competition  with  his  master,  the  tendency  is  to 
injure  or  endanger,  not  to  protect  and  promote  the  in- 
terests of  the  latter.     *     *     * 

"The  fact  may  be  in  certain  cases  that,  notwithstand- 
ing the  servant  has  engaged  in  a  rival  business,  still  he 
has  given  his  whole  time  and  attention  to  the  business 
of  his  master.  An  attempt  was  made  to  show  that  this  is 
such  a  case.  But  the  existence  of  that  fact  will  not  take 
a  case  out  of  the  rule  above  stated,  for  the  reason  that 
the  servant  would  yet  have  an  interest  against  his  duty. 


Question  185:  (1.)  State  the  right  of  an  agent  to  compete 
with  his  principal. 

(2.)  If  the  agent  has  not  agreed  to  give  his  entire  time  to  the 
business  of  his  master,  may  he  employ  his  extra  time  in  rivalry 
to  his  principal  ?  Why  ? 

Sec.  145.   Agent's  Duty  in  Regard  to  Personal  Behaviour. 

Case  No.  186.  Bass  Furnace  Co.  v.  Glasscock,  82  Ala. 
452. 

Facts:  Plaintiff  sues  for  his  wrongful  discharge.  He 
was  employed  at  $50  a  month  to  reduce  wood  to  charcoal 
on  defendant's  land.  "The  evidence  tends  to  show  that 
the  plaintiff  a  short  while  before  his  discharge,  was  drunk 
on  the  premises  of  the  defendant,  where  an  iron  furnace 
was  in  process  of  operation,  about  four  miles  away  from 
'the  coaling,'  as.it  is  called,  and  while  so  intoxicated  he 


314  AGENCY 

there  '  raised  a  disturbance  and  had  a  fight  with  a  man. ' 
At  another  time  he  was  seen  'drunk,  in  a  wagon  with 
some  negro  women,  going  toward  the  coaling.'  This  is 
all  that  is  shown  by  the  evidence  bearing  on  this  point. ' ' 
There  was  no  evidence  to  show  that  he  thereby  incapaci- 
tated himself  from  service  or  failed  to  give  the  service 
his  contract  expressly  called  for. 

Point  Involved:  The  right  to  discharge  a  servant  on 
account  of  his  personal  habits. 

SOMEKVILLE,   J.  :      *  *  *       *       * 

"The  court  charged  the  jury,  that  'the  fact  that  the 
plaintiff  was  drunk  once,  or  a  number  of  times,  at  the 
furnace  or  elsewhere,  during  his  employment  under  the 
contract,  is  no  evidence  against  plaintiff's  right  of  re- 
covery, unless  drunkenness  incapacitated  and  caused  the 
plaintiff  to  fail  in  his  part  of  the  contract. '  Is  this  a  cor- 
rect statement  of  the  law  on  this  subject? 

"To  justify  an  employer  in  discharging  a  servant,  or 
employee,  the  rule,  no  doubt,  is  that  the  servant  must 
have  been  guilty  of  conduct  which  can  be  construed  to  be 
a  breach  of  some  express  or  implied  provision  in  the  con- 
tract of  service.  It  seems  to  be  settled,  that  it  is  an 
implied  part  of  every  contract  of  service,  that  the  em- 
ployee will  abstain  from  habitual  drunkenness,  or  re- 
peated acts  of  intoxication,  during  the  period  of  his  em- 
ployment. If  he  be  guilty  of  this  indulgence,  his  conduct 
will  justify  his  dismissal.  2  Add.  Cont.  (Morgan's  ed.), 
§  890;  Wise  v.  Wilson,  1  Car.  &  K.  662;  2  Pars.  Cont. 
36  note  (f ) ;  Gonsolis  v.  Gearheart,  31  Mo.  585;  Hunting- 
ton v.  Cloflin,  10  Bosw.  262.  There  may  be  circumstances, 
however,  under  which  a  single  act  of  drunkenness  would 
warrant  a  servant's  discharge;  as,  for  example,  in  the 
case  of  a  minister  of  the  gospel,  where  the  act  might  bring 
personal  reproach,  and  tend  to  degrade  the  moral  stand- 
ard of  religion ;  or  of  a  family  physician,  where  it  might 
result  in  negligence  or  malpractice  in  pharmacy  or  sur- 
gery. Wood  on  Mast,  and  Serv.,  §  111,  p.  213.  The  same 
act,  when  committed  by  a  day  laborer,  in  privacy,  and 


MUTUAL  RIGHTS  AND  DUTIES  315 

when  off  duty,  or  on  some  rare  occasion  when  great 
temptation  was  presented,  might  not  be  a  sufficient  ex- 
cuse for  his  discharge.  The  rule  is  stated  by  a  recent 
author  to  be,  that  intoxication,  while  in  service,  is  gener- 
ally a  good  excuse  for  discharging  a  servant,  particularly 
when  it  is  habitual,  and  interferes  with  the  discharge  of 
his  duties,  or  will  be  likely  to.  But  it  is  held,  that  as  to 
whether  it  is  to  be  regarded  as  a  proper  excuse,  depends 
upon  the  occasion.  Wood  on  Mast,  and  Serv.  §  3,  p.  213. 
We  do  not  doubt  that  public  drunkenness  of  any  em- 
ployee, while  in  the  service  of  his  employer,  and  mani- 
festing itself  in  boisterous  and  disorderly  conduct,  either 
toward  the  employer  or  third  persons,  is  such  misconduct 
as  to  constitute  a  violation  of  the  stipulation,  implied  in 
every  contract  of  service,  that  the  employee  will  conduct 
himself  with  such  decency  and  politeness  of  deportment 
as  not  to  work  injury  to  the  business  of  the  employer. 
This  he  can  do  by  a  single  act  of  drunkenness,  which  may 
tend  to  offend  the  reasonable  prejudices  or  tastes  of  the 
public,  or  impair  their  confidence,  or  render  him  disagree- 
able in  social  or  business  intercourse.  The  drunkenness 
of  employees  may  wxell  deter  the  patrons  of  any  business 
establishment  from  continuing  their  business  intercourse 
with  it,  especially  when  social  contact  is  frequently  nec- 
essary to  its  consummation.  It  may  prove  also  equally 
offensive  to  the  master  or  employer,  who  may  justly  re- 
gard sobriety  as  an  indispensable  element  of  efficient 
service.  The  charge  of  the  court  laid  down  the  rule, 
that  no  drunkenness  justified  the  plaintiff's  discharge, 
unless  it  incapacitated  him,  and  caused  him  to  fail  in  the 
performance  of  his  part  of  the  contract.  This  under  the 
principles  above  declared  was  erroneous,  and  must  work 
a  reversal  of  the  cause." 

Question  186:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  On  what  general  principle  does  misbehaviour  of  the 
servant  give  the  master  a  right  to  discharge  him  ? 

(3.)  The  P.  R.  R.  Co.  employs  A  as  a  locomotive  engineer 
for  one  year.    Nothing  is  said  in  the  contract  about  drinking  alco- 


316  AGENCY 

holic  liquors.  The  company  passes  a  rule  that  all  employees 
must  abstain  from  such  liquors.  A  drinks  beer  in  modera- 
tion. He  is  threatened  with  discharge  unless  he  quits  and  not 
quitting,  is  discharged.    He  sues  for  damages.    Recover? 

B.    The  Agent's  Duty  to  Obey  Instructions  and  Exercise 
Prudence  and  Skill. 

§  146.  Agent's  duty  to  obey  instruc-      §  147.  The  agent's  duty  to  exercise 
tions.  prudence  and  skill. 

Sec.  146.    Agent's  Duty  to  Obey  Instructions. 

Case  No.  187.  Johnson  v.  New  York  Central  Transp. 
Co.,  33  N.  Y.  610.  . 

Facts:  Action  against  a  railroad  company  for  loss  of 
hemp.  The  loss  did  not  occur  on  the  defendant's  line,  but 
took  place  after  the  goods  had  been  delivered  to  a  con- 
necting carrier,  defendant's  contract  of  carriage  simply 
covering  its  own  line.  The  consignors  had,  however, 
given  instructions  as  to  the  connecting  carrier  and  these 
were  disobeyed  by  the  initial  carrier,  the  defendant. 

Point  Involved:  The  duty  of  the  agent  to  obey  the  in- 
structions of  his  principal. 

Porter,  J. :  *  *  The  defendant  undertook  to  transport 
the  flax  to  Albany,  and  to  forward  it  thence  to  New  York 
by  the  People's  Line  of  steamboats.  On  the  refusal  of 
that  line  to  receive  it,  the  defendant's  obligation  as  a 
carrier  ceased;  and  if  it  incurred  any  further  liability, 
it  was  in  the  character  of  agent  for  the  owner  of  the 
property.  In  the  absence  of  instructions  as  to  the  mode 
of  transportation  from  Albany,  it  owed  no  duty  to  the 
plaintiff,  beyond  the  delivery  of  the  property,  in  the 
usual  course  of  business,  to  safe  and  responsible  carriers 
for  transmission  to  its  destination :  Brown  v.  Dennison, 
2  Wend.  593;  Van  Santvoord  v.  St.  John,  6  Hill,  157.  But 
when  the  forwarding  agent  is  instructed  as  to  the  wishes 
of  his  principal,  and  elects  to  disregard  them,  he  is  guilty 


MUTUAL  RIGHTS  AND  DUTIES  317 

of  a  plain  breach  of  duty.  When  he  sends  goods  in  a 
mode  prohibited  by  the  owners,  he  does  it  at  his  own  risk, 
and  incurs  the  liability  of  insurer :  Ackley  v.  Kellogg,  8 
Cow.  225. 

"It  appears  in  the  present  case  that  the  contract  was 
made  with  the  freight  agent  of  the  defendant,  who  sug- 
gested that  it  would  be  better  to  forward  the  hemp  by 
tow-boat  from  Albany;  but  the  plaintiff  replied,  in  sub- 
stance, that  it  was  so  late  in  the  season  that  he  would  not 
send  it,  unless  it  could  go  by  the  People's  Line.  This 
proof  tends  to  show  that  the  defendant  received  the  prop- 
erty with  an  express  understanding  that  the  hemp  was 
not  to  be  forwarded  to  New  York  unless  by  the  People 's 
Line.  If  this  was  so,  the  defendant  was  clearly  liable. 
On  the  refusal  of  the  steamboat  proprietors  to  receive  the 
property,  the  company  should  either  have  communicated 
the  fact  to  the  plaintiff,  and  awaited  further  instructions, 
or  it  should  have  relieved  itself  from  liability,  by  depos- 
iting the  hemp  for  safe-keeping  in  a  suitable  warehouse : 
Forsyth  v.  Walker,  9  Pa.  St.  148;  Goold  v.  Chapin,  20  N. 
Y.  259  (75  Am.  Dec.  398) ;  Fisk  v.  Newton,  1  Denio,  451 
(43  Am.  Dec.  649). 

"There  is  a  class  of  cases  in  which  an  agent  is  justified 
by  an  unexpected  emergency  in  deviating  from  his  in- 
structions, where  the  safety  of  the  property  requires  it.  In 
this  instance  no  such  exigency  arose.  The  only  inconven- 
ience which  would  have  resulted  to  the  owner  from  com- 
pliance by  the  carrier  with  his  known  wishes  would  have 
been  mere  delay  in  transmitting  the  hemp  to  market ;  and 
he  had  notified  the  company  that  he  would  rather  submit 
to  this  delay  than  to  the  hazard  of  tow-boat  transporta- 
tion, at  the  close  of  the  season  of  navigation.  The  pri- 
mary duty  of  the  agent  is  to  observe  the  instructions  of 
his  principal,  and  when  he  departs  from  these,  he  must 
be  content  with  the  voluntary  risk  he  assumes :  1  Parsons 
on  Contracts,  69;  Forrester  v.  Boardman,  1  Story,  43; 
Ackley  v.  Kellogg,  8  Cow.  223." 

Question  187:  (1.)  State  the  facts,  the  specific  question  pre- 
sented and  the  Court's  decision. 


aid  AGENCY 

(2.)  What  did  the  Court  say  about  a  class  of  cases  in  which 
an  agent  is  justified  in  disobeying  instructions  ? 

(Note  to  above  case :  In  some  states  a  carrier  which  accepts 
goods  destined  to  a  point  beyond  the  terminus  of  its  own  line, 
undertakes  the  liability  of  a  common  carrier  for  the  entire  dis- 
tance, unless  it  affirmatively  stipulates  otherwise.  In  other 
states  (as  in  the  case  above),  its  duty  is  that  of  carrier  only 
while  the  goods  are  upon  its  own  line,  its  further  obligation  be- 
ing merely  that  of  a  forwarder,  that  is,  to  deliver  the  goods 
to  a  responsible  connecting  carrier  or  to  the  carrier  designated 
by  the  consignor.  The  Interstate  Commerce  acts  of  the  United 
States  now  make  a  carrier  which  accepts  interstate  shipments 
liable  as  a  carrier  for  the  entire  distance.) 

Case  No.  188.  Wilson  v.  Wilson,  26  Pennsylvania  St. 
393. 

Facts:  Thomas  Wilson  sued  Matthew  C.  Wilson  to 
recover  the  sum  of  $300.  Matthew,  residing  in  Pennsyl- 
vania, had  in  his  hands  $300,  belonging  to  Thomas  resid- 
ing in  North  Carolina.  Thomas  wrote,  "You  can  send 
inclosed  in  letter  in  $50 's  or  $100  notes  on  par  banks, 
*  *  *.  Only  be  careful  and  send  it  carefully  folded  up 
and  sealed."  The  defendant  purchased  18  bills  chiefly 
in  denominations  of  *$5,  $10  and  $20,  and  one  of  $100  and 
enclosed  the  same  in  a  letter  carefully  folded  and  sealed 
and  properly  addressed  and  stamped.  This  letter  never 
reached  its  destination. 

This  suit  is  brought  on  the  ground  that  defendant  by 
disobeying  instructions  assumed  the  risk. 

Point  Involved:  Whether  a  direction  to  send  money 
in  a  particular  way,  imposes  on  an  agent  who  sends  it  in 
another  manner,  the  risk  of  loss. 

Lewis,  C.  J.:  "The  primary  obligation  of  an  agent, 
whose  authority  is  limited  by  instructions,  is  to  adhere 
faithfully  to  those  instructions,  in  all  cases  to  which  they 
ought  properly  to  apply:  Story  on  Agency,  192.  He  is 
in  general  bound  to  obey  the  orders  of  his  principal  ex- 


MUTUAL  RIGHTS  AND  DUTIES  319 

actly,  if  they  be  imperative  and  not  discretionary;  and, 
in  order  to  make  it  the  duty  of  a  factor  to  obey  an  order, 
it  is  not  necessary  that  it  should  be  given  in  the  form  of 
a  command.  The  expression  of  a  wish  by  the  consignor 
may  fairly  be  presumed  to  be  an  order:  Story  on  Con- 
tracts, 359,  Brown  v.  McGran,  14  Peters,  494.  It  is  true 
that  instructions  may  be  disregarded  in  cases  of  extreme 
necessity  arising  from  unforeseen  emergencies,  or  if  per- 
formance becomes  impossible,  or  if  they  require  a  breach 
of  law  or  morals :  Story  on  Agency,  194.  These  are,  how- 
ever, exceptional  cases.  There  may,  perhaps,  be  others 
which  have  been  sanctioned  by  adjudications,  founded  on 
the  principle  that  the  departure  complained  of  was  not 
material.  But  the  general  rule  is  as  indicated  in  what 
has  been  said,  and  the  case  before  the  Court  is  not 
brought  within  any  of  the  exceptions.  To  justify 
a  departure  from  instructions,  where  a  loss  has  re- 
sulted from  such  deviation,  the  case  must  be  brought 
within  some  of  the  recognized  exceptions.  It  is  not 
sufficient  that  the  deviation  was  not  material  if  it 
appear  that  the  party  giving  the  instructions  re- 
garded them  as  material,  unless  it  be  shown  affirma- 
tively that  the  deviation  in  no  manner  contributed  to  the 
loss.  *  *  *  As  between  vendor  and  vendee,  the  right  of 
property  and  the  consequent  risk  vests  on  delivery  of  the 
goods  purchased  to  the  designated  carrier,  packed,  and 
directed  according  to  usage  or  instructions.  But  if  a  dif- 
ferent method  of  packing  and  directing,  or  a  different 
carrier  than  the  one  designated,  be  adopted  by  the  vendor, 
he  assumes  the  risk  in  case  of  loss,  unless  it  be  shown 
that  his  deviation  in  no  way  contributed  to  the  loss. 
Where  the  goods  are  stolen,  hdw  can  this  be  shown?  In 
sending  bank-notes  by  mail,  it  is  manifest  that  while  a 
large  package  would  attract  the  attention  and  care  of 
honest  agents  on  the  route,  it  might  tempt  the  cupidity 
of  dishonest  ones.  The  party  who  proposes  to  take  the 
risk  of  this  method  of  remittance  has  a  right  to  weigh 
the  advantages  and  disadvantages  of  the  money  to  be  re- 
mitted in  notes  of  $100  or  $50,  the  debtor  has  no  right  to 


320  AGENCY 

increase  the  size  of  the  package  by  remitting  in  notes  of 
$10  or  $5.  There  was  no  error  in  permitting  the  jury  to 
find  that  the  departure  from  instructions  was  imma- 
terial. ' ' 

Question  188:     (1.)     What  did  the  Court  hold  in  this  case? 
(2.)     State  the   exceptions  suggested  by   the   Court  which 
would  justify  a  disregard  of  instructions. 

Sec.  147.    Agent's  Duty  to  Use  Prudence  and  Skill. 

Case  No.  189.     Whitney  v.  Martin,  88  N.  Y.  535. 

Facts:  Suit  to  recover  a  sum  of  money  invested  by 
defendant's  testator  for  plaintiff,  in  second  mortgages, 
the  property  not  being  of  sufficient  value  to  satisfy  the 
first  mortgages.  The  deceased  (whose  executor  is  sued 
herein)  was  an  attorney  at  law  and  the  agent  of  the  plain- 
tiff and  having  money  to  invest  for  plaintiff,  invested 
the  same  in  second  mortgages  in  New  York  City. 

Point  Involved:  Generally,  of  the  duty  of  an  agent  to 
use  care,  prudence  and  skill.  Specifically,  the  rule  applied 
to  the  case  of  an  attorney  at  law  having  money  of  his 
principal  to  invest  who  invests  the  same  in  second  mort- 
gages with  scant  security. 

Miller,  J. :  "  •  *  *  Although  there  was  a  contra- 
diction in  the  testimony  in  regard  to  the  testator's  rela- 
tion to  the  plaintiff,  it  was  sufficient,  nevertheless,  to  war- 
rant the  conclusion  that  the  testator  was  intrusted  by  the 
plaintiff  with  making  the  loan,  and  the  duty  devolved 
upon  him  to  see  that  the  money  was  safely  and  securely 
invested.  The  responsibility  of  an  agent  or  attorney  un- 
der such  circumstances  is  beyond  dispute  and  the  rule  is 
well  settled  that  the  agent  is  not  only  bound  to  act  in 
good  faith,  but  to  exercise  reasonable  diligence  and  such 
care  and  skill  as  is  ordinarily  possessed  by  persons  of 
common  capacity  engaged  in  the  same  business.  (Here 
the  Court  reviews  the  evidence  showing  that  the  security 
was  inadequate.)     Loans  under  such  circumstances  are 


MUTUAL  RIGHTS  AND  DUTIES  321 

always  hazardous  and  doubtful,  and,  while  the  attorney 
or  agent  may  be  exonerated,  where  the  party  had  full 
knowledge  of  their  existence  and  the  value  of  the  prop- 
erty, it  would  be  a  very  unsafe  rule  to  hold  as  a  matter 
of  law,  that  an  agent  would  be  justified  without  an  under- 
standing by  the  party  of  the  true  character  of  the  prior 
encumbrance,  under  circumstances  like  these  here  pre- 
sented. 

"The  right  of  an  agent  to  advance  funds  on  second 
mortgages  or  security  not  of  the  first  class  may  well  be 
questioned.  (McQueen's  Appeal  Cases,  236.)  And  as  a 
general  rule  it  may  properly  be  laid  down  that  it  is 
not  prudent  or  safe  to  advance  moneys  on  second  mort- 
gages where  there  are  large  prior  encumbrance  and  es- 
pecially where  the  personal  security  of  the  mortgagor 
is  in  any  way  precarious.  Such  an  investment  is  not  a 
first  class  one.  *  *  *  And  as  this  case  is  presented 
upon  the  evidence,  we  are  brought  to  the  conclusion  that 
the  agent  exceeded  his  authority  and  was  chargeable  with 
,  a  want  of  proper  care  and  skill  in  making  the  investment ; 
and  for  this  neglect  he  is  legally  liable  for  the  loss  sus- 
tained.    *     *     *" 

Question  189:  (1.)  State  the  duty  of  an  agent  to  exercise 
care,  prudence  and  skill. 

(2.)  Suppose  in  this  case,  the  owner  of  the  money,  being 
sui  juris,  had  specifically  directed  the  investment  of  the  money 
in  this  particular  security.  Would  the  agent  be  liable  on  the 
failure  of  the  investment? 

(3.)  Suppose  that  the  agent  was  not  professional  and 
known  to  have  no  experience  or  skill  in  such  matters  and 
claimed  none.    Would  this  make  any  difference  ? 

C.  The  Agent's  Rights  and  Duties  in  Respect  to  Dele- 
gation of  Authority  and  the  Employment  of  Other 
Agents. 

§  148.  Duties     which     agent     must  §  150.  Duties    which   he   may   dele- 
personally   perform.  gate    to    others    and    for 

§  149.  Duties    he    may    entrust    to  whose     performance     after 

others  but  for  whose  proper  such   delegation   he   is   not 

performance     he     remains  responsible, 
personally  liable. 


322  AGENCY 

Sec.  148.    Duties  Which  Agent  Must  Personally  Perform. 

Case  No.  190.  Commercial  Bank  of  Lake  Erie  v.  Nor- 
ton &  Fox,  1  Hill  (N.  Y.)  501. 

Facts:  Suit  on  two  bills  of  exchange  held  by  plain- 
tiffs as  endorsees.  The  acceptances  of  the  bills  were 
signed  "E.  Norton  &  Co. — Per  A.  G.  Cochrane."  De- 
fense that  the  bills  were  accepted  without  authority.  The 
evidence  was  that  Henry  Norton  was  a  general  agent  of 
the  firm  and  had  authority  by  the  practice  of  the  house 
to  accept  bills  of  exchange  drawn  on  the  firm,  and  that 
said  Henry,  directed  Cochrane  to  accept  these  bills  of 
exchange. 

Point  Involved:  Whether  the  authority  of  an  agent  to 
do  the  ministerial  act  of  writing  an  acceptance  on  a  bill 
of  exchange,  could  be  delegated  by  him  to  another. 

Cowen,  J.  "*  *  *  But  it  is  said  he  (Henry  Nor- 
ton) could  not  delegate  the  power  to  accept.  This  is  not 
denied,  nor  did  he  do  so.  The  bills  came  for  acceptance, 
and  having  as  agent  made  up  his  mind  that  they  should 
be  accepted,  he  directed  Cochrane,  the  book  keeper,  to  do 
the  mechanical  part — write  the  acceptance  across  the 
bills.  He  was  the  mere  amanuensis.  Had  any  thing  like 
the  trust  which  is  in  its  nature  personal  to  an  agent,  a 
discretion  for  instance  to  accept  what  bills  he  pleased, 
been  confided  to  Cochrane,  his  act  would  have  been  void. 
But  to  question  it  here  would  be  to  deny  that  the  general 
agent  of  a  mercantile  firm  could  retain  a  carpenter  to 
make  a  box,  or  a  cooper  to  make  a  cask.    *     *     •" 

Question  190:  (1.)  What  was  the  question  in  this  case  and 
what  did  the  Court  decide  ? 

(2.)  What  acts  may  an  agent  allow  others  to  perform,  and 
what  acts  must  he  do  in  person?  What  are  illustrations  stated 
in  this  case  ?    Suggest  others. 

Sec.  149.    Duties  the  Agent  May  Entrust  to  Others  But 
for  Whose  Performance  He  Remains  Personally  Liable. 

(Note:     See  the  case  in  the  section  next  preceding.     Mere 


MUTUAL  RIGHTS  AND  DUTIES  323 

ministerial  acts  an  agent  is  not  bound  to  personally  perform. 
Yet  this  does  not  mean  he  is  not  responsible  for  their  proper 
performance.  What  his  agents  and  clerks  do  for  him,  he  does, 
and  he  is  responsible.) 

Sec.  150.  Duties  Which  an  Agent  May  Delegate  to 
Others  and  for  Whose  Performance  After  Such  Dele- 
gation He  Is  Not  Responsible. 

Case  No.  191.  First  National  Bank  of  Pawnee  City  v. 
Sprague,  34  Nebr.  318. 

Facts:    The  facts  appear  in  the  opinion. 

Point  Involved:  The  liability  of  a  bank  receiving  ne- 
gotiable paper  for  collection  for  the  defaults  of  its  cor- 
respondent to  whom  by  reason  of  the  paper  being  col- 
lectable in  another  place,  it  has  with  the  owner's  knowl- 
edge, found  it  necessary  to  send  such  paper. 

Post,  J. :  "On  the  3d  day  of  February,  1888,  at  Paw- 
nee City,  in  this  state,  the  defendant  in  error  drew  a  sight 
draft  on  Davis  &  Wedd,  residing  at  Canon  City,  Colo.,  of 
which  the  following  is  a  copy:  '$85.75.  First  National 
Bank,  Pawnee  City,  Neb.,  Feb.  3,  1888,  Pay  to  the  order 
of  First  National  Bank  of  Pawnee  City,  Neb.,  eighty-five 
and  75-100  dollars,  with  exchange  and  collection  charges ; 
value  received ;  and  charge  the  same  to  account  of  H.  W. 
Sprague.  To  Mess.  David  &  Wedd,  Canon  City,  Colo. 
No.  C.  5238.'  The  said  draft  was  by  the  drawer  left  with 
the  plaintiff  in  error  at  its  banking  house  in  Pawnee  City 
for  collection,  and  by  it  forwarded  for  collection  to  the  Ex- 
change Bank  of  Canon  City,  Colo.,  and  by  the  latter  col- 
lected in  full  from  the  drawees.  The  last-named  bank 
failed,  and  without  having  remitted  the  proceeds  of  the 
said  draft ;  and  no  part  thereof  has  been  paid,  either  to  the 
plaintiff  or  the  defendant  in  error.  There  is  no  contro- 
versy with  reference  to  the  facts  on  this  branch  of  the 
ease.  Defendant  in  error  was  a  customer  of  the  bank,  and 
was  in  the  habit  of  shipping  butter  to  parties  at  distant 
points,  and  making  sight  drafts  therefor  payable  to  its  or- 


324  AGENCY 

der,  credit  being  given  him  for  the  proceeds  thereof,  when 
collected.  It  further  appears  that  defendant  in  error 
was  permitted  by  the  bank  to  overdraw  his  account  by- 
reason  of  such  collections.  It  does  not  appear  that  plain- 
tiff in  error  was  in  the  habit  of  making  any  charge  for 
collecting  said  drafts.  With  reference  to  the  transaction 
in  question  he  testifies  as  follows:  'Question.  Did  you 
expect  them  to  charge  you  anything  for  collecting  this 
draft?'  Answer.  'Not  directly.  I  think  not.  If  I  had 
not  been  doing  my  banking  business  with  them,  I  would 
expect  to  pay  them ;  but  as  I  was  doing  my  business  there, 
and  they  charged  two  per  cent  for  overdrafts,  I  supposed 
they  did  this  as  a  favor.'  There  is  no  pretense  that  the 
bank  in  this  case  was  guilty  of  negligence  in  forwarding 
the  draft,  in  the  selection  of  its  correspondent,  or  in  giv- 
ing instructions  to  the  latter  with  reference  to  the  col- 
lection, or  remittance  of  the  money  when  collected. 

"The  only  question  for  consideration  is  whether  the 
plaintiff  in  error,  in  view  of  the  facts  stated,  is  answer- 
able for  the  default  of  the  bank  at  Canon  City.  The 
Court,  on  its  own  motion,  gave  the  following  instructions : 
'  The  Court  instructs  the  jury  that  when  a  home  bank  re- 
ceives for  collection  merely  a  draft  drawn  upon  a  person 
residing  in  another  place,  which  draft,  from  the  nature 
of  the  business  and  general  usage  in  such  cases,  will 
have  to  be  transmitted  for  collection  to  some  correspond- 
ent bank  at  the  place  where  the  debtor  resides,  and  for 
the  collection  of  which  draft  the  home  bank  will  receive 
only  the  customary  exchange,  in  the  absence  of  any  ex- 
press agreement  between  the  parties  to  the  contrary,  the 
home  bank,  if  it  exercises  due  and  ordinary  care  in  select- 
ing such  correspondent  bank,  and  transmits  such  draft 
for  collection  to  such  correspondent  bank,  will  not  be 
liable  for  the  default  or  failure  of  such  correspondent 
bank  to  remit  moneys  collected  by  it  upon  such  draft. '  If 
this  instruction  correctly  states  the  law  applicable  to  the 
case,  the  motion  for  a  new  trial  should  have  been  sus- 
tained. The  courts,  as  well  as  text-writers,  differ  widely 
upon  the  question  presented.    It  is  held  by  the  courts  of 


MUTUAL  RIGHTS  AND  DUTIES  325 

the  United  States,  New  York,  New  Jersey,  Ohio,  Indiana, 
Minnesota,  and  perhaps  others,  following  the  English 
cases,  that  where  a  note  or  bill  is  received  for  collection 
by  a  bank,  and  by  it  transmitted  to  a  correspondent  at  a 
distance  for  presentment  and  demand,  the  latter  is  the 
agent  of  the  transmitting  bank  only,  which  will  be  liable 
for  the  defaults  of  its  correspondent.  This  view  is  also 
approved  by  Mr.  Daniel  in  his  work  on  Negotiable  Instru- 
ments (vol.  1,  p.  324).  The  leading  case  holding  this 
is  Allen  v.  Merchants  Bank  of  New  York,  22  Wend.  215, 
34  Am.  Dec.  314,  in  which  by  a  vote  of  14  to  10  senators, 
the  opinion  of  Chancellor  Walworth  in  the  same  case  was 
overruled,  and  which  has  since  then  been  followed  and 
approved  by  the  court  of  appeals  in  numerous  cases.  It 
will  be  observed,  too,  that  when  this  rule  was  adopted  by 
the  supreme  court  of  the  United  States  (Hoover  v.  Wise, 
91  U.  S.  308,  23  L.  ed.  393)  dissenting  opinions  were  filed 
by  Justices  Miller,  Clifford  and  Bradley.  Mr.  Freeman 
in  a  note  to  Allen  v.  Merchants  Bank  of  New  York,  34 
Am.  Dec.  315,  while  expressing  a  preference  for  the  rule 
above  stated  says,  'The  preponderance  of  authority  is 
against  the  principal  case  and  in  favor  of  the  rule  that 
the  liability  of  a  bank  taking  a  note  or  bill  for  collection, 
which  is  payable  at  a  distance,  extends  merely  to  the  selec- 
tion of  a  suitable  and  competent  agent  at  the  place  of 
payment,  and  to  the  transmission  of  the  paper  to  such 
agent  with  proper  instructions,  and  that  the  correspond- 
ing bank  is  the  agent,  not  of  the  transmitting  bank  but  of 
the  holder,  so  that  the  transmitting  bank  is  not  liable  for 
the  default  of  the  correspondent  where  due  care  has  been 
used  in  selecting  such  correspondent. '  The  foregoing 
proposition  is  sustained  by  the  following  cases:  (citing 
numerous  cases).  *  *  *  The  doctrine  of  these  cases  is 
expressly  approved  in  Morse  on  Banks  &  Banking,  3d  ed. 
chap.  17.  A  discussion  of  the  reasons,  which  have  often 
been  advanced  by  courts  in  support  of  the  opposing  views 
of  the  question  involved  will  not  be  profitable  in  this  con- 
nection. In  our  opinion,  the  rule  stated  in  the  instruction 
given  by  the  Court  and  set  out  above  is  not  only  in  accord 


326  AGENCY 

with  the  weight  of  authority,  but  is  sustained  by  reasons 
sounder  in  themselves  and  more  in  consonance  with  the 
principles  which  underlie  and  determine  the  relations  of 
principal  and  agent. 

1 '  This  is  believed  to  be  a  typical  case,  and  to  be  fairly 
illustrative  of  the  method  of  making  collections  through 
the  agency  of  banks  in  this  country  at  this  time.  What- 
ever may  have  been  the  reasons  arising  out  of  the  busi- 
ness methods  existing  at  the  time  Allen  v.  Merchants 
Bank  of  New  York  was  decided  for  the  rule  adopted 
therein,  the  reason  for  such  a  rule  is  wanting  in  view  of 
the  present  changed  conditions.  Banks,  as  a  general  rule, 
have  now  no  facilities  for  making  collections  at  distant 
points,  not  enjoyed  by  the  business  public  at  large.  Form- 
erly they  may  have  enjoyed  a  monopoly  of  information 
relative  to  location,  names  and  credit  of  banks  at  distant 
or  remote  points.  To-day,  however,  business  men,  by 
means  of  the  information  derived  from  the  press  and  the 
numerous  directories  at  their  command,  may  collect  their 
bills  through  the  medium  of  banks  at  the  place  of  pay- 
ment as  cheaply,  safely  and  expeditiously  as  their  local 
bank.  It  is  more  convenient,  and  therefore  more  fre- 
quent, for  customers  to  deposit  drafts  and  acceptance 
with  their  home  banks  for  collection,  paying  therefor  the 
cost  of  exchange  only.     *     *     * " 

Question  191:  (1.)  What  is  the  duty  of  the  bank  in  respect 
to  selecting  correspondents? 

(2.)  Do  you  think  it  might  be  material  whether  the  bank 
received  more  than  the  customary  exchange  ? 

D.  The  Agent's  Responsibility  in  Case  of  Default  by 
the  Third  Person  on  Contracts  Made  Through  the 
Agency. 

§  151.  In  general.  §  152.  On  del  credere  appointments. 

Sec.  151.    In  General. 

(Note:     All  agents  except  agents  del  credere  are  mere  in- 


MUTUAL  RIGHTS  AND  DUTIES  327 

termediaries  and  do  not  become  liable  to  the  principal  for  the 
other  person's  failure  to  perform  the  contract.  Such  is  not  the 
intention  of  the  parties,  nor  would  it  be  just  and  reasonable. 

It  is  true  the  agent  may  have  an  obligation  arising  from  the 
nature  of  his  calling  or  other  circumstances,  to  choose  responsi- 
ble parties  with  whom  to  deal,  but  his  responsibility  in  that 
connection  arises  on  another  theory.) 

Sec.  152.    On  Del  Credere  Appointments. 

Case  No.  192.    Wolff  v.  Koppel,  2  Denio  (N.  Y.)  368. 

Facts:  Suit  by  a  principal  against  his  factor  on  the 
factor's  undertaking  that  all  the  sales  made  by  him 
should  be  paid  for.  Defense  that  the  promise  was  oral 
and  as  such  not  binding  under  the  provisions  of  the  stat- 
ute of  frauds  requiring  promises  to  answer  for  the  debts 
of  another  to  be  in  writing  in  order  to  be  enforceable. 
The  Court  below  held  for  the  plaintiff.    On  writ  of  error. 

Point  Involved:  Whether  a  del  credere  commission  is 
an  undertaking  establishing  a  principal  liability  on  the 
factor  or  making  him  surety,  or  guarantor  for  the  cus- 
tomers. 

Porter,  Senator  :  ' '  This  writ  of  error  seems  to  have 
been  brought  to  determine  whether  the  agreement  of  a 
factor  to  guarantee  the  sales  made  by  him  is  a  contract 
within  the  statute  of  frauds,  requiring  an  agreement  in 
writing  to  prove  its  existence.  This  necessarily  involves 
an  inquiry  into  the  nature  of  the  contract  which  the  factor 
makes  in  such  a  case.  The  plaintiff  insists  that  one  acting 
under  a  del  credere  commission  is  a  guarantor  or  surety 
for  the  debt  which  the  purchaser  of  the  goods  contracts ; 
while  the  defendants,  on  the  other  band,  maintain  that 
the  factor  contracts  an  original,  absolute  obligation  to 
pay  the  principal  the  amount  of  the  sales,  at  tbe  expira- 
tion of  the  term  of  credit.     *     *     * ' ' 

[Here  the  Court  reviews  English  authorities  prior  to 
the  year  1816,  showing  that  they  hold  that  the  undertak- 
ing of  the  factor  is  an  absolute  direct  undertaking 
whereby  he  places  himself  in  the  stead  of  the  debtor.] 


328  AGENCY 

"  *  *  *  Chancellor  Kent,  in  the  first  edition  of  his 
commentaries,  published  in  1826,  states  his  view  at  that 
time  of  the  law  on  this  point  as  follows :  'When  a  factor 
acts  under  a  del  credere  commission  for  an  additional 
premium,  he  becomes  liable  to  his  principal  when  the  pur- 
chase money  falls  due ;  for  he  is  substituted  for  the  pur- 
chaser, and  is  bound  to  pay,  not  conditionally,  but  abso- 
lutely and  in  the  first  instance. '  2  Kent's  Com.,  1st  ed., 
487.  The  principal  is  stated  in  the  same  way  in  2  Chit. 
Com.,  L.  220,  221. 

<<*  #  #  rpne  understanding  of  the  mercantile  com- 
munity has,  I  apprehend,  been  general  and  uniform,  that 
the  agreement  between  the  principal  and  factor  was  orig- 
inal and  absolute  to  pay  the  price  of  the  sale,  deducting 
the  commission,  at  the  time  the  credit  expired.  Doubt- 
less the  factor  expected  the  fund  would  be  received  from 
the  purchaser;  but  whether  received  or  not,  he  charges 
himself  with  the  amount  in  his  account  with  his  princi- 
pal. A  contrary  rule  would  require  the  principal  to  ex- 
haust his  remedy  against  the  purchaser  in  order  to  de- 
termine his  insolvency,  before  he  could  charge  the  factor 

as  surety. 

<<#     #     #>» 

Question  192:  Who  is  a  del  credere  agent?  Is  his  undertak- 
ing within  the  statute  of  frauds  ?  If  the  debtor  obtained  through 
his  agency  does  not  pay,  must  the  principal  seek  first  to  charge 
the  debtor  before  he  can  charge  the  agent  del  credere? 

(Note:  In  Balderson  v.  National  Rubber  Co.,  18  R.  I.  388, 
the  Court  quotes  from  Edwards  on  Bailments,  Sec.  278,  note, 
as  follows,  to  show  that  a  del  credere  agent,  is  in  all  respects  an 
agent  and  not  a  purchaser,  differing  from  ordinary  agents  merely 
in  his  undertaking  to  see  that  the  debts  contracted  through  his 
agency  are  paid : 

<<*  *  *  rpj^  en«ect  0f  a  commission  del  credere  is,  in  sev- 
eral particulars,  to  place  the  factor  in  new  relation  as  to  his 
principal.  It  is  true  he  is  the  debtor,  but  the  principal  still  re- 
tains the  right,  at  any  time  before  payment,  to  resort  to  the 


MUTUAL  RIGHTS  AND  DUTIES  329 

purchaser  as  collateral  security.  It  is  a  rule  for  the  protection 
of  the  principal.  A  general  factor  may  wait  to  receive  instruc- 
tion as  to  the  mode  of  remitting  the  net  proceeds,  and  is  not 
liable  to  an  action  until  a  default  on  his  part  in  remitting  or 
paying  the  proceeds  according  to  the  orders  of  his  principal: 
Ferris  v.  Paris,  10  Johns.  2-85.  The  only  difference  between  a 
factor  acting  under  a  del  credere  commission  or  without  one 
is  as  to  the  sales  made.  In  the  former  case  he  is  absolutely 
liable  and  may  correctly  be  said  to  become  the  debtor  of  his 
principal ;  but  it  is  not  strictly  correct  to  say  that  he  is  placed 
in  the  same  situation  as  if  he  had  become  the  purchaser  himself ; 
for,  as  we  have  seen,  the  principal,  notwithstanding  this  liabil- 
ity, may  exercise  a  control  not  allowable  between  creditor  and 
debtor.  "When  the  principal  appears,  the  right  of  the  factor  to 
receive  payment  ceases.  The  effect  of  the  commission  is  not  to 
extinguish  the  relation  between  principal  and  factor,  but  ap- 
plies solely  to  a  guaranty  that  the  purchaser  shall  pay.  The 
liability  is  not  contingent,  so  as  to  require  legal  measures  to'  be 
exhausted  against  the  purchaser  before  the  factor  is  bound, 
but  an  engagement  to  pay  on  the  day  the  purchase  money  becomes 
due.  Although  the  factor  is  absolutely  liable,  he  is  not  bound 
to  pay  until  the  money  becomes  due  from  the  purchaser.  Sub- 
ject to  the  limitations  above  mentioned,  the  factor,  under  a 
commission,  becomes  a  debtor  to  his  principal.") 


CHAPTER    TWENTY-FOUR 

THE  RIGHT  OF  THE  AGENT  TO  COMPENSATION 
AND  DAMAGES 

§  153.  As      governed      by     express  §  156.  Agent's      rights      upon      his 

agreement.  wrongful   discharge. 

§  154.  When  agreement  implied.  §  157.  Agent's  rights  upon  his  right- 
§  155.  When  right  of  compensation  ful  discharge, 

accrues  upon  performance. 

Sec.  153.    As  Governed  by  Express  Agreement. 

Case  No.  193.  Huber  Mfg.  Co.  v.  Watson,  19  Ky.  L.  R. 
864. 

Facts:  Suit  to  recover  certain  commissions  alleged  to 
have  been  earned  by  Watson  as  agent  for  Huber  Mfg. 
Co.  in  selling  threshing  machines  and  engines.  Watson 
was  employed  under  a  written  contract  which  gave  him 
a  certain  commission,  payable  as  payments  were  made, 
except  it  was  provided  "no  commission  to  be  allowed  or 
paid  *  *  *  on  sale  of  goods  where  foreclosure  pro- 
ceedings at  any  time  become  necessary."  Watson  made 
a  sale  of  certain  engines  to  Gallagher  Bros,  and  a  mort- 
gage was  taken  to  secure  the  purchase  price.  This  mort- 
gage was  foreclosed.  The  present  suit  is  upon  certificates 
which  were  issued  to  Watson  when  the  sale  was  made, 
payable  to  Watson  upon  the  same  dates  that  the  install- 
ments on  the  engine  fell  due. 

Paynter,  J. :  "  *  *  *  The  only  question  in  this  case 
is  whether  or  not  Watson  is  bound  by  the  contract  which 
he  made  with  his  principal.    It  is  written  in  unmistak- 

330 


AGENT'S  COMPENSATION  331 

able  terms  that  he  is  not  to  be  paid  a  commission  for  his 
services  if  it  becomes  necessary  for  the  company  to  in- 
stitute foreclosure  proceedings.  Whether  it  was  a  wise 
contract  for  him  to  make  is  not  for  us  to  determine.  He 
was  charged  with  the  responsibility  of  determining  that 
question  for  himself  before  it  was  executed.  The  com- 
pany knew  that  proceedings  to  enforce  its  lien  in  the 
courts  were  necessarily  expensive.  *  *  *  Tne  com- 
pany wanted  him  (the  agent)  to  make  sales  to  solvent 
persons,  and  those  who  would  pay  it  without  the  neces- 
sity of  instituting  legal  proceedings  to  enforce  payment. 
The  provision  in  question  was  to  the  advantage  of  the 
company  in  that  it  made  the  agent  careful  as  to  whom 
he  made  sales.  When  the  agent  agreed  to  accept  the  com- 
pensation provided  for  in  the  contract  he  took  the  risk 
that  his  right  to  it  would  fail  if  foreclosure  proceedings 
became  necessary. ' ' 

Sec.  154.    When  the  Agreement  Implied. 

See  Hertzog  v.  Hertzog,  Case  No.  116,  supra. 

Sec.  155.    When  Right  of  Compensation  Accrues  upon 

Performance. 

Case  No.  194.    Fox  v.  Ryan,  240  111.  391. 

Facts:  Fox  sues  to  recover  $4,000  as  commissions 
claimed  to  have  been  earned  by  him  as  agent  in  selling 
Ryan's  mining  stock.  Ryan  procured  a  purchaser  who 
entered  into  a  contract,  but  the  contract  was  never  car- 
ried out  by  the  purchaser. 

Point'  Involved:  Whether  a  broker  to  sell  who  pro- 
cures a  purchaser  who  is  accepted  by  and  enters  into  a 
contract  with  the  seller,  is  entitled  to  his  commission  if 
the  purchaser  refuses  to  perform  the  contract. 

Mr.  Chief  Justice  Farmer:  "*  *  *  The  second 
proposition  asked  by  the  appellant  was,  that  merely  pro- 
curing a  person  to  enter  into  a  contract  for  the  purchase 
of  property  does  not  entitle  a  broker  to  commissions 


332  AGENCY 

Unless  such  person  was  ready,  willing  and  able  to  make 
the  payments,  including  deferred  payments,  named  in 
the  contract.  The  Court  modified  this  proposition  by 
adding,  'unless  the  defendant  accepted  the  purchaser.' 
The  proposition  as  modified  was  correct.  Where  a  broker 
is  employed  to  sell  property  by  the  owner,  if  he  produces 
a  purchaser  within  the  time  limited  by  his  authority  who 
is  ready,  willing  and  able  to  purchase  the  property  upon 
the  terms  imposed  by  the  seller  he  is  entitled  to  his  com- 
missions, even  though  the  seller  refuses  to  perform  the 
contract  on  his  part.  In  such  case,  however,  it  is  neces- 
sary for  the  broker  to  prove  the  readiness,  willingness 
and  ability  of  the  purchaser  to  take  the  property  on  the 
terms  proposed.  But  where  the  seller  accepts  the  pur- 
chaser and  enters  into  a  valid  contract  of  sale  with  him, 
the  broker's  commission  is  earned  whether  the  purchaser 
subsequently  fails  to  perform  his  contract  and  make  the 
payments  agreed  upon  or  not.  There  are  cases  in  other 
States  holding  otherwise,  but  in  Wilson  v.  Mason,  158  111. 
304,  this  Court  refused  to  follow  those  cases,  denominat- 
ing them  as  extreme  and  exceptional,  and  said,  on  page 
311 :  *  The  true  rule  is,  that  the  broker  is  entitled  to  his 
commissions  if  the  purchaser  presented  by  him  and  the 
vendor,  his  employer,  enter  into  a  valid,  binding  and  en- 
forceable contract.  If  after  the  making  of  such  a  con- 
tract, even  though  executory  in  form,  the  purchaser  de- 
clines to  complete  the  sale  and  the  seller  refuses  to  com- 
pel performance,  the  broker  ought  not  to  be  deprived  of 
his  commissions.  He  has  done  all  that  he  can  do  when  he 
produces  a  party  who  is  able,  and  in  binding  form  offers, 
to  purchase  upon  the  proposed  terms.  An  agreement  by 
a  real  estate  broker  to  procure  a  purchaser  not  only  im- 
plies that  the  purchaser  shall  be  one  able  to  comply,  but 
that  the  seller  and  the  purchaser  must  be  bound  to  each 
other  in  a  valid  contract.  So  where  the  agreement  of  the 
real  estate  broker  is  to  make  a  sale,  his  commission  is 
earned  when  a  contract  is  entered  into  which  is  mutually 
obligatory  upon  the  vendor  and  vendee,  even  though  the 


AGENT'S  COMPENSATION  333 

vendee  afterwards  refuses  to  execute  ids  part  of  the  con- 
tract of  sale  or  purchase." 

Question  194:  (1.)  A  authorizes  B,  a  real  estate  broker, 
to  sell  his  property  on  certain  specified  terms.  B  procures  C, 
but  A  refuses  to  deal  with  C.  On  what  conditions,  if  any,  can 
B  compel  A  to  pay  him  a  commission? 

(2.)  A  authorizes  B,  a  real  estate  broker,  to  sell  his  prop- 
erty on  certain  specified  terms.  B  procures  C,  with  whom  A 
makes  a  contract  of  sale.  C  is,  however,  financially  irresponsible 
and  fails  to  perform  his  contract.  Is  B  entitled  to  his  commis- 
sions ? 

(3.)  A  advises  B,  a  broker,  that  he  wants  to  sell  his  home 
and  directs  C  to  procure  him  a  buyer.  No  terms  are,  however, 
proposed,  as  A  wants  to  bargain  with  the  prospective  buyers. 
B  procures  C,  who  offers  A  a  good  price  but  A  refuses  to  sell  to 
him.  C  is  ready,  willing  and  able  to  buy  at  a  good  market  price. 
Is  B  entitled  to  his  commission? 

(4.)  Suppose  in  the  case  last  stated  A  had  accepted  C  and 
made  terms  with  him  and  entered  into  a  contract.  Would  B  be 
entitled  to  his  commissions? 

Sec.  156.    Agent's  Rights  upon  His  Wrongful  Discharge. 

Case  No.  195.     Doherty  v.  Shipper  &  Block,  250  111.  128. 

Facts:  E.  Doherty  was  employed  by  defendant,  for  a 
period  of  eighteen  weeks  at  $25.00  per  week,  payable 
weekly.  At  the  end  of  the  9th  week  she  was  discharged 
without  cause  (as  she  claimed).  At  the  end  of  the  follow- 
ing week  she  brought  suit  before  a  Justice  of  the  Peace 
for  her  week's  wages  and  recovered  a  judgment  for 
$25.00.  This  judgment  was  paid.  She  now  sues  at  the 
end  of  the  entire  term  for  the  eight  additional  weeks 
covered  by  her  contract.  Defendant  contends  that  the 
suit  before  the  justice,  bars  her  right  to  prosecute  any 
subsequent  suit. 

Point  Involved:  Whether  an  employee  discharged 
wrongfully  from  his  employment  can  bring  repeated  suits 
for  his  installments  of  salary  as  they  would  have  fallen 
due  had  the  employment  continued.  Whether  upon  any 
theory  a  discharged  employee  may  have  more  than  one 
action  for  his  discharge. 


334  AGENCY 

Mr.  Justice  Hand  :  ' '  The  sole  question  raised  in  this 
Court  and  argued  in  the  briefs  filed  by  the  respective 
parties  is,  was  the  first  judgment  rendered  by  the  justice 
of  peace  a  bar  to  this  action? 

"It  is  well  settled  that  in  case  an  employee  is  dis- 
charged without  cause  before  the  term  of  his  employ- 
ment has  expired  and  he  has  been  paid  in  full  up  to 
the  time  when  he  is  discharged,  he  may  treat  the  contract 
of  hiring  as  continuing  and  bring  an  action  for  a  breach  of 
the  contract  of  employment  against  his  employer  for  dis- 
charging him,  and  if  the  suit  is  not  commenced,  or  if 
commenced  before  but  not  tried,  until  his  term  of  employ- 
ment has  expired,  he  may  recover  the  contract  price  of 
his  wages,  less  what  he  has  earned  or  by  reasonable 
diligence  could  have  earned  in  other  employment  subse- 
quent to  his  discharge.  (Mount  Hope  Cemetery  Ass'n 
v.  Weidenmann,  139  111.  67.)  There  is  a  class  of  cases 
which  holds  this  remedy  is  not  exclusive,  but  that,  in  addi- 
tion to  such  remedy,  the  employee,  where  his  wages  by 
the  terms  of  the  contract,  are  payable  in  installments, 
may  bring  an  action  for  each  installment  of  wages  as  it 
falls  due,  subsequent  to  his  wrongful  discharge,  and  that 
the  recovery  on  one  installment  is  not  a  bar  to  the  re- 
covery on  subsequently  accruing  installments.  (Gan- 
dell  v.  Pontigny,  4  Camp.  375.)  The  recovery  for  each 
installment  of  wages  allowed  in  the  class  of  cases  re- 
ferred to,  as  it  falls  due,  is  based  upon  the  theory  of 
constructive  service,  and  while  the  right  of  a  recovery 
was  thus  permitted  for  a  time  in  England  and  in  the 
courts  of  some  of  the  States  in  the  Union,  that  theory 
of  recovery  has  been  abandoned  in  England,  (Archard 
v.  Horner,  3  C.  &  P.  349;  Smith  v.  Hayward,  7  Aid.  & 
Ell.  544;  Fewings  v.  Tisdal,  1  Exch.  295;)  and  quite  gen- 
erally in  this  country.  James  v.  Allen  County,  44  Ohio 
St.  226 ;  Howard  v.  Daly,  61  N.  Y.  362 ;  Richardson  v. 
Eagle  Machine  Works,  78  Ind.  422;  Olmstead  v.  Bach 
&  Son,  (Md.)  22  L.  R.  A.  74. 

<<*  *  *  We  have  examined  the  numerous  cases 
bearing  upon  the  subject  which  have  been  cited  in  the 


AGENT'S  COMPENSATION  33S. 

briefs,  and  are  of  the  opinion  that  upon  principle  the 
only  action  which  logically  can  be  maintained,  upon  the 
facts  of  this  case,  against  the  appellee,  is  an  action 
for  the  breach  of  the  contract  of  employment  growing 
out  of  the  wrongful  discharge  of  the  appellant,  and  that 
all  damages  resulting  from  such  breach  must  be  re- 
covered in  one  action,  and  that  after  one  recovery  has 
been  had  that  recovery  is  a  bar  to  all  future  actions 
based  upon  the  contract  of  employment  or  growing  out 
of  the  relation  of  employer  and  employee  by  reason  of 
the  wrongful  discharge  of  the  appellant. 

"We  think  the  doctrine  of  constructive  service,  as  ap- 
plied to  a  case  like  this  and  where  used  as  a  basis  of 
recovery,  is  illogical  and  unsound.  The  court  has  uni- 
versally held  that  the  proper  measure  of  damages  in  a 
case  like  this  is  the  contract  price,  less  what  the  employee 
earned  or  could  have  earned.  That  being  so,  if  the  dis- 
charged employee  can  find  employment  it  is  his  duty  to 
accept  it,  How  can  it  then  be  said  that  while  he  is  per- 
forming service  for  another  person  he  is  constructively 
engaged  in  the  employ  of  the  employer  by  whom  he  was 
discharged!  *  *  *  "We  therefore  conclude  that  the 
judgment  recovered  before  the  justice  of  the  peace  was  a 
complete  bar  to  the  subsequent  action. ' ' 

Question  195:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  What  is  the  theory  of  constructive  service?  What  are 
the  objections  to  that  theory  ? 

(3.)  State  the  remedies  which,  according  to  this  case,  a  dis- 
charged employee  may  elect  between  to  recover  his  salary  or 
his  damages. 

(4.)  What  is  the  difference  in  principle,  between  this  case 
and  successive  suits  for  monthly  rentals  falling  due  upon  prem- 
ises wrongfully  abandoned  by  tenant  ? 

(Note :  As  to  the  duty  of  the  employee  to  reduce  damages,  see 
case  No.  154,  supra.) 

Sec.  157.    Agent's  Rights  upon  His  Rightful  Discharge. 

(Note :  See  the  cases  of  Stark  v.  Parker  and  Britton  v.  Turner, 
Cases  Nos.  158  and  159,  supra.) 


PART    VII 

THE  RIGHTS  AND  OBLIGATIONS  OF  THIRD  PER- 
SONS  GROWING  OUT  OF  THE  AGENCY 


Chapter  Twenty-five. 
Chapter  Twenty-six. 


Rights  of  Third  Persons 
Against  the  Agent. 

Rights  of  Third  Persons  in 
Contract  Against  a  Disclosed 
Principal. 


Chapter  Twenty-seven.     Rights    of   Third   Persons    in 

Contract  Against  an  Undis- 
closed Principal. 


Chapter  Twenty-eight. 

Chapter  Twenty-nine. 
Chapter  Thirty. 


Chapter  Thirty-one. 


Knowledge  of  Agent  as  Knowl- 
edge of  Principal. 

The  Admissions  of  the  Agent. 

Responsibility  of  Principal 
(or  Master)  to  Third  Person 
for  Torts  of  Agent  (or  Serv- 
ant). 

Rights  of  Principal  Against 
Third  Person. 


336 


CHAPTER    TWENTY-FIVE 

RIGHTS  OF  THIRD  PERSONS  AGAINST  THE 

AGENT 

§  158.  General  rule.  §  161.  Agent's    assumption    of    lia- 
§  159.  When    agent    bound   because  bility  by  the  form  of  hia 

he  lacks  authority.  contract. 

§  160.  Agent's   liability   when   prin-  §  ICO.  Agent's  liability  in  tort. 

cipal  undisclosed. 

Sec.  158.    The  General  Rule. 

(Note:  The  general  rule  may  be  simply  and  briefly  stated: 
if  the  agent  discloses  his  principal  and  acts  as  the  representative 
of  such  principal,  and  within  his  authority  the  principal  is 
bound  and  the  agent  is  not. ) 

Sec.  159.    When  Agent  Personally  Bound  Because  He 
Lacks  Authority. 

Case  No.  196.  Thilmany  v.  Iowa  Paper  Bag  Co.  and 
Wm.  Daggett,  108  Iowa,  357. 

Facts:  Suit  by  Thilmany  to  recover  the  purchase 
price  of  a  carload  of  paper  shipped  to  the  Iowa  Paper 
Bag  Co.  The  paper  was  shipped  under  a  contract  of 
purchase  by  the  Bag  Company,  and  a  guaranty  of  pay- 
ment signed  "Iowa  National  Bank,  by  William  Daggett, 
V.  P."  It  is  sought  to  hold  Daggett  on  the  theory  that 
he  exceeded  his  authority,  the  bank  having  no  power 
under  its  charter  to  make  such  a  contract. 

Point  Involved:  Whether  an  agent  is  responsible  on 
a  contract  made  by  him  in  excess  of  his  actual  or  ap- 

337 


338  AGENCY 

parent  authority;  limitations  on  the  doctrine.  Specific- 
ally, whether  an  agent  who  seeks  to  bind  a  corporation 
on  a  contract  it  has  no  power  under  its  charter  to  make, 
is  personally  liable. 

Deemer,  J.:  "Plaintiff  claims  that  defendant  Dag- 
gett is  liable  on  the  written  guaranty  for  two  reasons: 
First,  because  it  is  his  individual  contract,  was  intended 
to  bind  him  as  well  as  the  bank,  and  was  so  received 
and  acted  upon  by  appellant ;  second,  for  the  reason  that, 
if  he  intended  said  guaranty  or  letter  of  credit  to  be 
the  obligation  of  the  bank  only,  he  was  acting  beyond 
the  scope  of  his  authority  as  vice-president  of  the  bank, 
and  failing  to  bind  the  bank,  is  himself  liable;  as  an 
agent  who  attempts  to  bind  his  principal  by  a  contract 

he  had  no  authority  as  such  agent  to  make. 

n*     #     # 

"As  to  the  second  proposition,  the  rule  has  been 
broadly  stated  over  and  over  again  that  when  an  agent 
contracts  in  excess  of  his  authority,  or  acts  without 
authority,  or  assumes  to  have  authority  when  he  has 
none,  or  for  any  reason  fails  to  bind  his  principal,  he 
is  himself  bound.  Winter  v.  Hite,  3  Iowa,  142 ;  Allen  v. 
Pegram,  16  Iowa,  163;  Andrews  v.  Tedford,  37  Iowa, 
314;  Lewis  v.  Tilton,  64  Iowa,  220.  That  this  is  the  gen- 
eral rule  must  be  conceded,  and,  as  applied  to  the  facts 
of  the  cited  cases,  it  is  correct.  But  like  nearly  every 
other  general  rule,  it  is  subject  to  exceptions,  some  of 
which  we  will  notice.  The  reasons  generally  given  for 
the  rule  are :  First.  That,  as  the  agent  assumes  to  rep- 
resent a  principal,  he  cannot  be  heard  to  say  that  he 
had  no  authority,  or  that  there  was  in  fact  no  principal 
to  be  bound ;  for,  if  he  assumes  to  represent  another,  he 
impliedly  warrants  that  there  is  such  another,  and  that 
he  has  authority  to  represent  him.  If,  then,  there  is  no 
principal,  or  the  agent  has  no  authority  to  act  for  him, 
an  action  will  lie  for  deceit  or  misrepresentation.  Second. 
The  law  assumes  that  the  contract  was  intended  to  bind 
someone,  and,  if  the  principal  is  not  bound,  the  contract 


RIGHTS  OF  THIRD  PERSONS  339 

must  be  that  of  the  agent.  This  last  rule  is  generally 
applied  to  executed  contracts.  In  such  cases  action  will 
lie  for  benefits  received  by  the  agent.  Some  cases  go  to 
the  extent  of  rejecting  all  parts  of  the  contract  relating  to 
the  obligation  of  the  principal,  and  then  treat  it  as  the 
personal  contract  of  the  agent.  As  illustrating  this  rule, 
see  Byars  v.  Doors,  20  Mo.  284 ;  Woodes  v.  Dennett,  9  N. 
H.  55 ;  Twerilliger  v.  Murphy,  104  Ind.  32  (3  N.  E.  Rep. 
404).  A  third  reason  for  the  rule  is  that  the  agent  im- 
pliedly warrants  his  authority  to  act  for  his  principal, 
and  if  he  has  no  such  power,  an  action  lies  for  breach 
of  warranty.  Now,  it  is  apparent,  that  if  the  party 
with  whom  the  agent  contracts  has  notice  of  the  facts 
relating  to  the  authority  of  the  agent,  and  is  as  fully 
advised  as  to  his  authority  as  the  agent  himself,  there 
can  be  no  action  for  deceit.  And  so  the  text  writers  have 
generally  stated  this  as  an  exception  to  the  general  rule. 
Mechem  on  Agency,  at  sections  545  and  546,  thus  states 
the  law:  'Sec.  545.  *  *  *  Of  course  if  the  other 
party  knew,  or  by  the  exercise  of  reasonable  care  might 
have  discovered,  the  want  of  authority,  he  cannot  re- 
cover. This  implied  warranty  by  the  agent  of  his 
authority  must  ordinarily  be  limited  to  its  existence  as 
a  matter  of  fact,  and  not  be  held  to  include  a  warranty 
of  its  adequacy  or  sufficiency  in  point  of  law. '  '  Sec.  546. 
"Where  Agent  Discloses  All  the  Facts  Relating  to 
His  Authority.  Where,  however,  the  agent,  acting  in 
good  faith,  fully  discloses  to  the  other  party  at  the  time 
all  the  facts  and  circumstances  touching  the  authority 
under  which  he  assumes  to  act,  so  that  the  other  party 
from  such  information  or  otherwise,  is  fully  informed 
as  to  the  existence  and  extent  of  his  authority,  he  cannot 
be  held  liable.  It  is  material,  in  these  cases,  that  the 
party  claiming  a  want  of  authority  in  the  agent  should 
be  ignorant  of  the  truth  touching  the  agency.  If  he  has 
full  knowledge  of  the  facts,  or  of  such  facts  as  are  suffi- 
cient to  put  him  upon  inquiry,  and  he  fails  to  avail 
himself  of  such  knowledge,  or  of  the  means  of  knowl- 
edge reasonably  accessible  to  him,  he  cannot  say  that 


340  AGENCY 

he  was  misled,  simply  on  the  ground  that  the  other 
assumed  to  act  as  agent  without  authority.  Of  course, 
if  the  agent  conceals  or  misrepresents  material  facts,  to 
the  detriment  of  the  other  party,  he  cannot  claim  ex- 
emption. '  Judge  Story,  in  his  valuable  work  on  Agency, 
(section  265)  says:  'This  doctrine,  however,  as  to  the 
liability  of  the  agent,  where  he  contracts  in  the  name 
and  for  the  benefit  of  the  principal,  without  having  due 
authority,  is  founded  upon  the  supposition  that  the  want 
of  authority  is  unknown  to  the  other  party,  or  if  known, 
that  the  agent  undertakes  to  guaranty  a  ratification  of 
the  act  by  the  principal.  But  circumstances  may  arise 
in  which  the  agent  would  not  or  might  not  be  held  to  be 
personally  liable,  if  he  acted  without  authority,  if  that 
want  of  authority  was  known  to  both  parties  or  unknown 
to  both  parties. '  Abundant  authorities  are  cited  by  each 
author  in  support  of  these  propositions.  The  same 
thought  is  equally  applicable  to  the  third  reason  above 
given  for  the  general  rule.  And  it  may  be  further  said 
that  the  implied  warranty  of  the  agent  does  not  relate 
to  the  power  of  the  principal  to  enter  into  the  particular 
contract.  He  simply  covenants  that  he  has  authority  to 
act  for  his  principal,  not  that  the  act  of  the  principal  is 
legal  and  binding.  Hence  it  has  been  justly  said  that  the 
contract  must  be  one  which  the  law  would  enforce  against 
the  principal,  if  it  had  been  authorized  by  him,  else  the 
anomaly  would  exist  of  giving  a  right  of  action  against 
an  assumed  agent  for  an  unauthorized  representation  of 
his  power  to  make  the  contract,  when  a  breach  of  the 
contract  itself,  if  it  had  been  authorized,  would  have  fur- 
nished no  ground  of  action  against  the  principal.  *  *  * ' 
[The  court  decides  that  on  neither  of  the  grounds  con- 
tended for,  is  Daggett  liable.] 

Question  196:  (1.)  State  the  facts  in  this  case,  the  specific 
question  presented  and  the  Court's  decision. 

(2.)  State  in  your  own  words  the  rule  as  to  the  liability  of 
an  agent  to  a  third  person  when  that  third  person  cannot  hold 
the  principal  because  of  lack  of  real  or  apparent  authority.  On 
what  reasons  is  the  agent  so  held  ? 


RIGHTS  OF  THIRD  PERSONS  341 

(3.)  Why  is  the  plaintiff  in  this  case  chargeable  with  notice 
that  Daggett  had  no  authority  to  bind  the  bank  ? 

Sec.  160.    Agent 's  Liability  When  Principal  Undisclosed. 

Case  No.  197.    Wheeler  v.  Reed,  36  111.  81. 

Facts:  Suit  by  Reed  and  others  against  Wheeler  to 
recover  damages  arising  out  of  an  alleged  breach  of 
warranty  in  a  sale  of  flour  by  WTheeler.  Among  other 
defenses,  W7heeler  contended  that  he  was  not  represent- 
ing himself  but  a  principal.  Plaintiffs  testify  that  no 
principal  was  named  or  known  at  the  time,  though  it 
was  known  he  was  a  broker.    The  transactions  were  oral. 

Point  Involved:  The  liability  of  an  agent  as* principal 
where  he  does  not  disclose  his  principal. 

Breese,  J.    "*     *     *. 

' '  The  next  question  raised  by  the  appellant  is,  whether 
the  defendant  made  the  warranty  to  bind  himself,  or  on 
behalf  of  a  principal. 

"We  admit  the  rule  to  be  as  stated,  where  an  agent 
makes  a  contract  and  discloses  at  the  same  time  his  prin- 
cipal, or  the  principal  was  known  at  the  time  by  the  other 
party,  the  agent  is  not  personally  liable  unless  he  makes 
himself  so,  expressly ;  or  it  may  be  fairly  inferred  from 
the  nature  of  the  contract  itself  and  concurring  circum- 
stances. These  are  facts  for  the  consideration  of  the 
jury,  and  they  have  found  there  was  no  agency  in  this 
sale.  The  account  rendered  shows  the  sale  was  made  by 
the  defendant  as  principal.  Nor  does  the  proof  show 
that  the  broker,  when  he  purchased,  knew  the  principal. 
He  traded  with  the  defendant  as  the  principal,  and  so 
the  account  of  sales  was  made  out  and  the  receipt  of 
payment  made. 

"It  would  seem  to  us,  this  proof  would  enable  the  de- 
fendant to  recover  in  his  own  name,  against  the  plain- 
tiffs, had  they  failed  to  pay  for  the  flour  on  delivery. 
This  is  some  test  of  the  right  of  the  plaintiffs  to  recover 
against  him,  for  a  breach  of  his  contract  of  warranty. 


342  AGENCY 

"The  witness  stated  that  the  defendant  did  not  dis- 
close his  agency ;  he  supposed  he  was  selling  on  commis- 
sion; did  not  know,  when  he  bought,  that  one  Burrows 
was  the  proprietor  of  the  flour,  but  supposed  so ;  that  de- 
fendant had  advanced  upon  it,  and  that  Burrows  was  run- 
ning the  mill. 

"The  rule  is,  that  a  vendor  not  disclosing  his  agency, 
may  be  treated  as  a  principal.  This  was  held  in  Mills 
v.  Hunt,  20  Wend.  433,  and  is  a  settled  rule.  In  that 
case,  the  sale  of  the  several  articles  was  made  by  Mills, 
Brothers  &  Co.,  and  the  bill  of  parcels  made  out  in  their 
copartnership  name,  without  disclosing  the  fact  they  were 
acting  as  the  agents  of  other  parties.  They  were  auc- 
tioneers, and  that  fact  was  held  not  to  be  sufficient  notice 
to  the  purchasers  that  they  were  not  selling  their  own 
goods.  The  law  was  considered  by  the  court  of  errors, 
in  that  case,  as  well  settled,  that  a  vendor  or  purchaser, 
dealing  in  his  own  name,  without  disclosing  the  name  of 
his  principal,  is  personally  bound  by  his  contract;  and 
it  makes  no  difference  that  he  is  known  to  the  other 
party  to  be  an  auctioneer  or  broker,  who  is  usually  em- 
ployed in  selling  property  as  the  agent  for  others.  And 
the  court  further  held,  even  when  he  discloses  the  name 
of  his  principal,  if  he  signs  a  written  contract  in  his  own 
name  merely,  which  does  not  show  upon  its  face  that 
he  was  acting  as  the  agent  of  another,  or  in  an  official 
capacity  in  behalf  of  the  government,  he  will  be  per- 
sonally bound  thereby.  This  rule  has  not  been  modified 
or  changed  by  any  decision  of  this  court.  The  case  in 
2nd  Gilm.  371,  Chase  v.  Debolt,  was  a  case  where  the 
agency  was  disclosed  at  the  time  of  the  contract.  The 
plaintiff  knew  that  he  was  working  for  Bishop  Chase, 
and  not  for  the  defendant.  The  case  of  Warren  v.  Dick- 
son, 27  111.  118,  holds  merely,  that  where  the  fact  of 
agency  is  known,  it  is  not  necessary  to  disclose  it.  The* 
case  of  Marckle  v.  Haskins,  ib.  382,  decides  only,  if  one 
bargains  with  an  agent,  knowing  him  to  be  such,  and 
the  principal  has  recognized  the  transaction,  a  warranty 
by  the  agent  is  a  warranty  of  the  principal,  and  he  is 
the  proper  party  to  be  sued  for  a  breach. 


RIGHTS  OF  THIRD  PERSONS  343 

"The  case  of  Seery  v.  Socks,  et  al.,  29  111.  313,  decides 
merely,  when  a  person  professing  to  act  as  an  agent  dis- 
closes the  name  of  his  principal,  he  assumes  no  personal 
responsibility  unless  he  acts  fraudulently.  These  cases 
do  not  militate  against  the  rule  laid  down  in  20th  "Wen- 
dell. It  is  a  settled  rule  in  verbal  contracts,  if  the  agent 
does  not  disclose  his  agency  and  name  his  principal,  he 
binds  himself  and  becomes  subject  to  all  liabilities,  ex- 
press and  implied,  created  by  the  contract  and  trans- 
action, in  the  same  manner  as  if  he  were  the  principal 
in  interest.  Davenport  et  al.  v.  0 'Riley  et  al.,  2  Mc- 
Cord,  198;  Allen  et  al.  v.  Eostain,  11  Serg.  &  Rawle,  362, 
375 ;  Mauri  v.  Hefferman,  13  Johns.  58,  77.  And  the  fact 
that  the  agent  is  known  to  be  a  commission  merchant, 
auctioneer,  or  other  professional  agent,  makes  no  differ- 
ence. Waring  v.  Mason,  18  Wend.  426 ;  Hastings  v.  Lov- 
ering,  2  Pick.  214 ;  and  the  case  in  20th  Wend.  431,  Mills 
v.  Hunt,  which  we  have  already  cited. ' ' 


Question  197 :  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  this  case? 

(2.)  Even  though  the  principal  is  known,  how,  as  suggested 
by  the  Court,  might  the  agent  bind  himself? 

(Note :  If  the  third  person  on  discovering  the  principal  elects 
to  hold  him,  the  agent's  liability  ceases.  For  further  treat- 
ment of  the  law  of  undisclosed  principals,  see  Chapter  27,  post. 
See  also  the  next  section  for  the  liability  of  the  agent  on  written 
contracts  where  the  principal  is  known  but  not  properly  named 
in  a  written  contract.) 

Sec.  161.    Agent's  Assumption  of  Liability  by  the  Form 
of  His  Contract. 

Case  No.  198.  Casco  National  Bank  v.  Clark,  139  N.  Y. 
307. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  In  what  form  an  agent  should  execute 
a  negotiable  instrument  of  his  principal  in  order  not  to 


RIDGEWOOD 

ICE 

COMPANY 


344  AGENCY 

bind  himself  personally.     Whether  the  instrument  set 
out  in  this  case  binds  the  principal  or  the  agent. 

Gray,  J.:    "The  action  is  upon  a  promissory  note  in 
the  following  form,  viz. : 

Brooklyn,  N.  Y.,  Aug.  2, 1890. 
$7,500.  Three  months  after  date, 
we  promise  to  pay  to  the  order  of 
Clark  &  Chaplin  Ice  Company, 
seventy-five  hundred  dollars  at  Me- 
chanics Bank ;  value  received. 
E.  H.  Close,  Treas. 

John  Clark,  Prest." 
"It  was  delivered  in  payment  for  ice  sold  by  the  payee 
company  to  the  Ridgewood  Ice  Company,  under  a  con- 
tract between  those  companies,  and  was  discounted  by 
the  plaintiff  for  the  payee,  before  its  maturity.  The  ap- 
pellants, Clark  and  Close,  appearing  as  makers  upon 
the  note,  the  one  describing  himself  as  'Prest.'  and  the 
other  as  'Treas.,'  were  made  individually  defendants. 
They  defended  on  the  ground  that  they  made  the  note 
as  officers  of  the  Ridgewood  Ice  Company  and  did  not 
become  personally  liable  thereby  for  the  debt  repre- 
sented. 

"Where  a  negotiable  promissory  note  has  been  given 
for  the  payment  of  a  debt  contracted  by  a  corporation, 
and  the  language  of  the  promise  does  not  disclose  the  cor- 
porate obligation,  and  the  signatures  to  the  paper  are  in 
the  names  of  individuals,  a  holder,  taking  bona  fide  and 
without  notice  of  the  circumstances  of  its  making,  is  en- 
titled to  hold  the  note  as  the  personal  undertaking  of  its 
signers,  notwithstanding  they  affix  to  their  names  the 
title  of  an  office.  Such  an  affix  will  be  regarded  as  de- 
scriptive of  the  persons  and  not  of  the  character  of  the 
liability.  Unless  the  promise  purports  to  be  by  the  cor- 
poration, it  is  that  of  the  persons  who  subscribe  to  it; 
and  the  fact  of  adding  to  their  names  an  abbreviation  of 
some  official  title  has  no  legal  signification  as  qualifying 
their  obligation,  and  imposes  no  obligation  upon  the  cor- 


RIGHTS  OF  THIRD  PERSONS  345 

poration  whose  officers  they  may  be.  This  must  be  re- 
garded as  the  long  and  well-settled  rule  (Byles  on  Bills, 
Sec.  36,  37,  71 ;  Pentz  v.  Stanton,  10  Wend.  271 ;  Taf t  v. 
Brewster,  9  Johns.  334;  Hills  v.  Bannister,  8  Cow.  31; 
Moss  v.  Livingston,  4  N.  Y.  208;  De  Witt  v.  Walton,  9  id. 
571;  Bottomley  v.  Fisher,  1  Hurlst.  &  Colt.  211).  It  is 
founded  in  the  general  principle  that  in  a  contract  every 
material  thing  must  be  definitely  expressed,  and  not  left 
to  conjecture.  Unless  the  language  creates,  or  fairly  im- 
plies, the  undertaking  of  the  corporation,  if  the  purpose 
is  equivocal,  the  obligation  is  that  of  its  apparent  makers. 

"It  was  said  in  Briggs  v.  Partridge,  64  N.  Y.  357,  363, 
that  persons  taking  negotiable  instruments  are  presumed 
to  take  them  on  the  credit  of  the  parties  whose  names 
appear  upon  them,  and  a  person  not  a  party  cannot  be 
charged,  upon  proof  that  the  ostensible  party  signed,  or 
indorsed,  as  his  agent.  It  may  be  perfectly  true,  if  there 
is  proof  that  the  holder  of  negotiable  paper  was  aware, 
when  he  received  it,  of  the  facts  and  circumstances  con- 
nected with  its  making,  and  knew  that  it  was  intended 
and  delivered  as  a  corporate  obligation  only,  that  the 
persons  signing  it  in  this  manner  could  not  be  held  in- 
dividually liable.  Such  knowledge  might  be  imputable 
from  the  language  of  the  paper  in  connection  with  other 
circumstances ;  as  in  the  case  of  Mott  v.  Hicks,  1  Cowen, 
513,  where  the  note  read,  'the  president  and  directors 
promise  to  pay,'  and  was  subscribed  by  the  defendant  as 
'president.'  The  Court  held  that  that  was  sufficient  to 
distinguish  the  case  from  Taft  v.  Brewster,  supra,  and 
made  it  evident  that  no  personal  engagement  was  entered 
into  or  intended.  Much  stress  was  placed  in  that  case 
upon  the  proof  that  the  plaintiff  was  intimately  ac- 
quainted with  the  transaction  out  of  which  arose  the  giv- 
ing of  the  corporate  obligation. 

1 '  In  the  case  of  the  Bank  of  Genesee  v.  Patchin  Bank, 
19  N".  Y.  312,  referred  to  by  the  appellant's  counsel,  the 
action  was  against  the  defendant  to  hold  it  as  the  indorser 
of  a  bill  of  exchange,  drawn  to  the  order  of  •  S.  B.  Stokes, 
Cas.,'  and  indorsed  in  the  same  words.     The  plaintiff 


346  AGENCY 

bank  was  advised,  at  the  time  of  discounting  the  bill,  by 
the  president  of  the  Patchin  Bank,  that  Stokes  was  its 
cashier,  and  that  he  had  been  directed  to  send  it  in  for 
discount,  and  Stokes  forwarded  it  in  an  official  way  to 
the  plaintiff.  It  was  held  that  the  Patchin  Bank  was 
liable,  because  the  agency  of  the  cashier  in  the  matter 
was  communicated  to  the  knowledge  of  the  plaintiff  as 
well  as  apparent. 

"Incidentally,  it  was  said  that  the  same  strictness  is 
not  required  in  the  execution  of  commercial  paper  as 
between  banks,  that  is  in  other  respects,  between  indi- 
viduals. 

4 'In  the  absence  of  competent  evidence  showing  or 
charging  knowledge  in  the  holder  of  negotiable  paper  as 
to  the  character  of  the  obligation,  the  established  and 
safe  rule  must  be  regarded  to  be  that  it  is  the  agreement 
of  its  ostensible  maker  and  not  of  some  other  party, 
neither  disclosed  by  the  language,  nor  in  the  manner  of 
execution.  In  this  case  the  language  is  'we  promise  to 
pay,'  and  the  signatures  by  the  defendants  Clark  and 
Close  are  perfectly  consistent  with  an  assumption  by 
them  of  the  company's  debt. 

' '  The  appearance  upon  the  margin  of  the  paper  of  the 
printed  name  'Ridge wood  Ice  Company'  was  not  a  fact 
carrying  any  presumption  that  the  note  was,  or  was  in- 
tended to  be,  one  by  that  company. 

"It  was  competent  for  its  officers  to  obligate  them- 
selves personally,  for  any  reason  satisfactory  to  them- 
selves, and,  apparently  to  the  world,  they  did  so  in  the 
language  of  the  note;  which  the  mere  use  of  a  blank 
form  of  note,  having  upon  its  margin  the  name  of  their 
company,  was  insufficient  to  negative.     *     *     *  " 

Question  198:  (1.)  Redraft  the  note  in  the  above  case  so 
that  there  would  be  no  question  that  the  corporation  was  liable 
and  that  the  president  and  treasurer  were  not  liable. 

(2.)  "Was  the  plaintiff  in  the  above  case  the  payee  or  a  pur- 
chaser from  the  payee  ?  Might  that  make  a  difference  ?  Do  you 
think  it  would  necessarily  make  a  difference? 


RIGHTS  OF  THIRD  PERSONS  34? 

Case  No.  199.    Barlow  v.  Cong.  Soc,  90  Mass.  460. 

Facts:  Contract  brought  by  the  administrator  of  the 
estate  of  Reuben  Barlow  against  the  Congregational 
Society  in  Lee,  upon  the  following  promissory  note : 

"$23.00.  Lee,  April  26,  1858.  On  demand  I  as  treas- 
urer of  the  Congregational  Society,  or  my  successors  in 
office,  promise  to  pay  Erastus  Hall  or  order  twenty- 
three  dollars,  value  received,  with  interest.  Samuel  S. 
Rogers,  Treasurer.'* 

The  declaration  alleged  that  the  defendants,  for  value 
received  by  them,  made  the  note  by  Samuel  S.  Rogers, 
their  treasurer  and  agent,  duly  authorized;  and  that  it 
was  duly  indorsed  to  the  plaintiff's  intestate.  The  de- 
fendants filed  a  general  demurrer,  which  was  overruled 
in  the  superior  court,  and  judgment  rendered  for  the 
plaintiff;  and  the  defendants  appealed  to  this  court. 

Point  Involved:  In  what  form  an  agent  should  execute 
a  negotiable  instrument  of  his  principal  in  order  to  bind 
said  principal.  Whether  the  instrument  set  out  in  the 
above  facts  binds  the  principal  or  the  agent. 

Gray,  J. :  * '  It  is  well  settled  in  this  commonwealth 
that  the  question  whether  a  principal  or  his  agent  is  the 
party  liable  upon  a  negotiable  note  or  bill  of  exchange 
must  be  ascertained  from  the  instrument  itself,  at  least 
when  both  are  in  law  capable  of  contracting  and  it  is  not 
pretended  that  either  has  adopted  the  name  of  the  other 
as  his  own  for  the  purpose  of  transacting  business.  This 
exception  to  the  general  rule  which  governs  other  parol 
(or  unsealed)  agreements  is  derived  from  the  nature  of 
negotiable  paper,  which,  being  made  for  the  very  pur- 
pose of  being  transferred  from  hand  to  hand,  and  of  giv- 
ing to  every  successive  holder  as  strong  a  claim  upon  the 
maker  as  the  original  payee  had,  must  indicate  on  its 
face  who  the  maker  is;  for  any  additional  liability  of 
the  principal,  not  expressed  in  the  form  of  such  a  note  or 
bill,  would  not  be  negotiable ;  and  any  ambiguity  arising 
upon  the  face  of  the  writing  in  determining  whether  it 
is  the  promise  of  the  principal  or  of  the  agent,  must,  on 


348  AGENCY 

the  ordinary  principles  of  the  law  of  evidence,  be  solved 
without  the  aid  of  extrinsic  testimony. 

n*     #     #     jj.  jiag  jn(jee(j  been  adjudged  by  the  supreme 

court  of  the  United  States,  as  well  as  by  this  court,  that 
on  commercial  paper  payable  to  'A.  B.,  cashier,'  the  bank, 
although  not  named  in  the  instrument,  might  maintain  an 
action.  *  *  *  Whether  those  decisions  stand  upon 
the  peculiar  relation  between  a  bank  and  its  cashier,  or 
(as  the  opinions  imply)  upon  a  general  right  of  any 
principal  to  sue  upon  negotiable  paper  made  to  his  agent, 

we  need  not  here  inquire. 

a  #     #     * 

"All  the  decisions  of  this  court  upon  unsealed  instru- 
ments since  the  case  of  Mann  v.  Chandler  have  required 
something  more  than  a  mere  description  of  the  general 
relation  between  the  agent  and  the  principal,  in  order  to 
make  them  the  contracts  of  the  latter.  Thus  an  agree- 
ment which  declares  the  signers  to  be  a  committee  of  a 
certain  town,  or  trustees  of  a  particular  meeting-house, 
and  is  signed  with  their  own  names,  without  addition,  is 
their  individual  contract.  *  *  *  So  a  promissory 
note,  in  the  body  of  which  the  principal  is  not  named, 
and  which  is  signed  by  the  agent  in  his  own  name,  does 
not,  by  the  mere  addition  to  his  signature  of  the  words, 
'trustee'  or  'president'  of  a  particular  railroad  corpora- 
tion, become  the  note  of  the  corporation. 

a  *       *       * 

"Upon  the  question  what  words  in  a  simple  contract, 
made  by  the  hand  of  an  agent  of  an  individual  or  a  pri- 
vate corporation,  will  bind  the  principal,  the  line  of  dis- 
tinction between  the  cases,  even  in  the  same  court,  is  very 
narrow.  Thus  it  is  well  settled  that  a  promissory  note 
made  by  an  agent,  without  naming  his  principal  in  the 
body  of  it  but  signed  'For  C.  D.,  A.  B.,'  or  'A.  B.,  agent 
for  C.  D.,'  or  'A.  B.,  for  C.  D.'  is  the  note  of  C.  D.  the 
principal.  *  *  *  But  it  seems  to  be  equally  well 
settled  in  this  court,  and  supported  by  English  authority, 
that  the  mere  insertion  of  'for,'  or  'for  and  in  behalf  of 
the  principal,  in  the  body  of  the  note,  does  not  make  it  the 


RIGHTS  OF  THIRD  PERSONS  349 

contract  of  the  principal,  if  signed  by  the  mere  name  of 
the  agent,  without  addition.  *  *  *  So  a  direction  in 
a  bill  of  exchange  drawn  by  an  agent  to  place  the  amount 
'to  the  account'  of  his  principal,  has  been  held  not  to 
exempt  an  agent,  signing  his  own  name  without  addition, 


' '  The  case  now  before  the  Court  is  stronger  against  the 
principal  than  any  of  these.  The  note  is  dated  at  Lee, 
and  calls  the  person  who  affixes  the  signature  'treasurer 
of  the  Congregational  Society,'  thus  distinctly  naming 
the  Congregational  Society  in  Lee,  and  showing  who 
the  principal  is;  the  promise  contained  in  the  note  is 
expressed  to  be  made  by  the  writer  'as  treasurer  of*  that 
society;  it  does  not  promise  a  payment  by  the  present 
treasurer  at  all  events,  but  by  him  'or  his  successors  in 
office,'  which  could  not  be  if  the  note  were  merely  his 
personal  act,  and  not  the  act  of  the  corporation  whose 
agent  he  was ;  and  the  designation  of  his  office  is  repeated 
after  his  signature.  In  short,  the  note  not  only  names 
the  principal,  describes  the  relation  between  the  principal 
and  agent,  and  declares  the  note  to  be  made  in  execution 
of  the  agency,  but  it  cannot  take  effect  according  to  its 
terms,  except  as  the  note  of  the  principal. ' ' 

Question  199:  (1.)  State  how  the  note  in  this  ease  read, 
how  it  was  signed,  and  whether  the  Court  held  the  agent  liable. 

(2.)  What  form  of  description  of  the  principal  in  the  body 
of  this  note,  and  form  of  signature  would  have  avoided  all  ques- 
tion as  to  whether  the  principal  and  not  the  agent  was  liable 
on  this  note?  Redraft  the  note  and  signature  in  conventional 
form  showing  that  the  trustee  signed  beyond  a  doubt  merely  as 
agent. 

Case  No.  200.    Higgins  v.  Senior,  8M.&W.  834. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:    Whether  an  agent  representing  a  dis- 


350  AGENCY 

closed  principal,  who  executes  a  simple  contract  solely 
in  his  own  name,  can  show  by  parol  evidence,  that  it  was 
not  intended  to  bind  him,  the  agent. 

Parke,  B. :  "The  question  in  this  case,  which  was 
argued  before  us  in  the  course  of  the  last  term,  may 
be  stated  to  be,  whether  in  an  action  on  an  agreement  in 
writing,  purporting  on  the  face  of  it  to  be  made  by  the  de- 
fendant, and  subscribed  by  him,  for  the  sale  and  delivery 
by  him  of  goods  above  the  value  of  £10,  it  is  competent 
for  the  defendant  to  discharge  himself,  on  an  issue  on 
the  plea  of  non  assumpsit,  by  proving  that  the  agreement 
was  really  made  by  him  by  the  authority  of  and  as  agent 
for  a  third  person,  and  that  the  plaintiff  knew  those  facts, 
at  the  time  when  the  agreement  was  made  and  signed. 
Upon  consideration,  we  think  that  it  was  not :  and  that 
the  rule  for  a  new  trial  must  be  discharged. 

"There  is  no  doubt,  that  where  such  an  agreement  is 
made,  it  is  competent  to  show  that  one  or  both  of  the 
contracting  parties  were  agents  for  other  persons,  and 
acted  as  such  agents  in  making  the  contract,  so.  as  to  give 
the  benefit  of  the  contract  on  the  one  hand  to,  and 
charge  with  liability  on  the  other,  the  unnamed  prin- 
cipals: and  this,  whether  the  agreement  be  or  be  not 
required  to  be  in  writing  by  the  Statute  of  Frauds :  and 
this  evidence  in  no  way  contradicts  the  written  agree- 
ment. It  does  not  deny  that  it  is  binding  on  those  whom, 
on  the  face  of  it,  purports  to  bind ;  but  shows  that  it  also 
binds  another,  by  reason  that  the  act  of  the  agent,  in 
signing  the  agreement,  in  pursuance  of  his  authority,  is 
in  law  the  act  of  the  principal. 

"But,  on  the  other  hand,  to  allow  evidence  to  be  given 
that  the  party  who  appears  on  the  face  of  the  instrument 
to  be  personally  a  contracting  party,  is  not  such,  would 
be  to  allow  parol  evidence  to  contradict  the  written 
agreement ;  which  cannot  be  done.  And  this  view  of  the 
law  accords  with  the  decisions,  not  merely  as  to  bills 
of  exchange  signed  by  a  person,  without  stating  his 
agency  on  the  face  of  the  bill;  but  as  to  other  written 


RIGHTS  OF  TBIRD  PERSONS  351 

contracts,  namely,  the  cases  of  Jones  v.  Littledale,  6  Ad, 
&  Ml  486;  1  Nev.  &  A.  677,  and  Magee  v.  Atkinson,  2  M. 
&  W.  440.  It  is  true  that  the  case  of  Jones  v.  Littledale 
might  be  supported  on  the  ground  that  the  agent  really 
istended  to  contract  a-s  principal:  but  Lord  Denma-n,  in 
delivering  the  judgment  of  the  Court  lays  down  this  as  a 
general  proposition,  'that  if  the  agent  contracts  in  such 
a  form  as  to  make  himself  personally  responsible,  he  can- 
not afterwards,  whether  his  principal  were  or  were  not 
known  at  the  time  of  the  contract,  relieve  himself  from 
that  responsibility.'  And  this  is  also  laid  down  in  Story 
on  Agency,  §  269.  Magee  v.  Atkinson  is  a  direct  author- 
ity, and  cannot  be  distinguished  from  this  case. ' ' 

Question  200:     State  the  doctrine  of  this  case. 

Sec.  162.    Agent's  Liability  in  Tort. 

Case  No.  201.     Baird  v.  Shipman,  132  111.  16. 

Facts:    The  facts  are  given  in  the  opinion. 

Point  Involved:  The  liability  of  the  agent  for  his  own 
torts  in  connection  with  the  agency. 

This  court  adopts  the  opinion  of  the  Appellate  Court, 
as  follows : 

Gaknett,  P.  J. :  "  This  is  an  appeal  from  a  judgment 
for  damages,  founded  on  the  alleged  negligence  of  appel- 
lants, by  which  the  death  of  Joseph  Garnett,  appellee's 
intestate,  is  said  to  have  been  caused.  The  place  where 
the  injury  happened  was  in  a  barn  situated  on  premises 
on  Michigan  Avenue,  in  Chicago,  belonging  to  Aaron  C. 
Goodman,  who  was  then,  and  for  several  years  before, 
a  resident  of  Hartford,  Connecticut.  Appellants  were 
his  agents  for  renting  the  premises  during  the  years 
1884  and  1885,  and  during  both  years  were  carrying  on 
the  real  estate  business  in  Chicago.  On  the  trial  evidence 
was  given  tending  to  show  that  they  had,  in  fact,  com- 
plete control  of  the  premises,  with  the  residence  and 
barn  thereon,  repairing  the  same  in  their  discretion,  and 


352  AGENCY 

there  was  no  proof  that  in  such  matters  they  received 
any  directions  from  the  owner.  The  property  was  rented 
by  appellants  to  Emma  R.  Wheeler  and  A.  R.  Tillman 
from  April  1,  1884,  to  April  30,  1885,  and  to  Emma  R. 
Wheeler  from  May  1, 1885,  to  April  30, 1886.  Both  leases 
were  in  writing,  and  by  the  terms  of  each  lease  the  ten- 
ants covenanted  to  keep  the  premises  in  good  repair. 
The  tenant  in  the  last  lease  rented  the  premises  to  Nellie 
E.  Pierce,  who  occupied  the  same  from  April  28,  to  Sep- 
tember, 1885.  The  evidence  tends  to  prove  that  when 
the  lease  was  made  to  Emma  R.  Wheeler,  the  large  car- 
riage door  to  the  barn  was  in  a  very  insecure  condition, 
and  that  appellants,  through  one  Warner,  the  manager 
of  their  renting  department,  verbally  agreed  with  Mrs. 
Wheeler  to  put  the  premises  in  thorough  repair.  Nothing 
was  done  to  improve  the  condition  of  the  door,  and  on 
June  12,  1885,  while  the  deceased,  an  expressman  by 
occupation,  was  engaged  in  delivering  a  load  of  kindling 
in  the  barn,  for  one  of  the  parties  living  in  the  house,  the 
door,  weighing  about  four  hundred  pounds,  fell  from  its 
fastenings,  and  injured  him  to  such  an  extent  that  he 
died  the  following  day. 

" Appellants  make  two  points:  First,  that  the  verdict 
is  clearly  against  the  weight  of  the  evidence ;  second,  that 
they  were  the  agents  of  the  owner,  Goodman,  and  liable 
to  him,  only,  for  any  negligence  attributable  to  them. 

"There  is  nothing  more  than  the  ordinary  conflict  of 
evidence  found  in  such  cases,  presenting  a  question  of 
fact  for  the  jury,  and  the  finding  must  be  respected  by 
this  court  in  deference  to  the  well  settled  rule. 

1  ■  The  other  point  is  not  so  easily  disposed  of.  An  agent 
is  liable  to  Ms  principal  only  for  mere  breach  of  his  con- 
tract with  the  principal.  He  must  have  due  regard  to 
the  rights  and  safety  of  third  persons.  He  can  not,  in 
all  cases,  find  shelter  behind  his  principal.  If,  in  the 
course  of  his  agency,  he  is  entrusted  with  the  operation 
of  a  dangerous  machine,  to  guard  himself  from  personal 
liability  he  must  use  proper  care  in  its  management  and 
supervision,  so  that  others  in  the  use  of  ordinary  care 


RIGHTS  OF  THIRD  PERSONS  353 

will  not  suffer  in  life,  limb  or  property.  (Suydam  v. 
Moore,  8  Barb.  358;  Phelps  v.  Wait,  30  N.  Y.  78.)  It  is 
also  his  contract  with  the  principal  which  exposes  him  to 
or  protects  him  from  liability  to  third  persons,  but  his 
common  law  obligation  to  so  use  that  which  he  controls 
as  not  to  injure  another.  That  obligation  is  neither  in- 
creased nor  diminished  by  his  entrance  upon  the  duties 
of  agency,  nor  can  its  breach  be  excused  by  the  plea  that 
his  principal  is  chargeable.  Delaney  v.  Rochereau,  34  La. 
Ann.  1123. 

' '  If  the  agent  once  actually  undertakes  and  enters  upon 
the  execution  of  a  particular  work,  it  is  his  duty  to  use 
reasonable  care  in  the  manner  of  executing  it,  so  as  not 
to  cause  any  injury  to  third  persons  which  may  be  the 
natural  consequences  of  his  acts,  and  he  can  not,  by 
abandoning  its  execution  midway,  and  leaving  things  in 
a  dangerous  condition,  by  reason  of  his  having  so  left 
them  without  proper  safeguards.  Osborne  v.  Morgan, 
130  Mass.  102." 

Question  201:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  the  above  case. 

(2.)  A  has  a  house  in  a  tumble  down  condition.  He  con- 
tracts with  B  to  repair  it.  B  never  enters  upon  the  performance 
of  the  contract.  C  being  rightfully  on  the  premises  is  injured 
by  falling  through  a  rotten  plank.    Is  B  liable? 

(3.)  In  the  case  of  Singer  Mfg.  Co.  v.  Rahn,  Case  No.  162 
supra,  would  the  agent  have  been  liable  had  he  been  sued  for 
the  tort  of  negligently  driving  the  wagon  to  the  plaintiff's  dam- 
age? 


CHAPTER    TWENTY-SIX 

RIGHTS  OF  THIRD  PERSONS  IN  CONTRACT 
AGAINST  A  DISCLOSED  PRINCIPAL 

§  163.  In  general.  §  168.  Implied   or  apparent   powers 
§164.  The  authority  is  determined  of  agents:    to  receive  pay- 
by   the   apparent   scope  of  ment. 

the  appointment.  §  169.  Implied   or   apparent   powers 

§165.  Implied     or     apparent    pow-  of  agents:  to  extend  credit 

ers  of  agents:     to  borrow  on  sales. 

money.  §  170.  Implied     or    apparent     pow- 

§  166.  Implied   or   apparent   powers  ers  of  agents:    to  warrant 

of  agents:    to  make  or  en-  goods  sold. 

dorse   commercial   paper. 
§  167.  Implied   or   apparent   powers 

of  agents:    to  sell  personal 

property. 

Sec.  163.    In  General. 

Case  No.  202.     Law  v.  Stokes,  3  Vroom  (N.  J.)  249. 

Facts :  Suit  brought  to  recover  the  amount  of  a  bill  of 
goods  sold  by  plaintiff,  to  defendant.  Defense :  That  the 
goods  were  paid  for  by  payment  to  plaintiff 's  agent.  De- 
nial that  the  person  paid  was  plaintiff's  agent  to  receive 
payment.  Plaintiff  was  an  importer  of  earthenware,  and 
defendant  a  hotel  keeper.  Defendant  on  July  5,  1865, 
bought  at  plaintiff's  store  earthenware  amounting  to 
$320.85  from  an  agent  by  the  name  of  Sheridan  employed 
by  plaintiff  to  sell  goods  on  commission.  Sheridan  sold 
the  goods  on  credit  to  be  paid  on  August  1,  1865.  On 
July  6,  1865,  the  goods  were  shipped,  and  a  letter  was 
sent  by  plaintiff  to  defendant,  which  said,  in  part,  "  please 
remit  amount  direct  to  me."    Inclosed  was  a  bill  on  the 

354 


AUTHORITY  OF  AGENT  355 

head  of  which  were  the  words,  in  red  letters,  "All  remit- 
tances on  account,  or  in  settlement  of  bills  must  be  made 
direct  to  the  principal;  salesman  not  authorized  to  col- 
lect. ' '  On  August  16,  1865,  defendant  paid  Sheridan  for 
the  goods  at  defendant's  hotel,  taking  receipt  signed  "J. 
B.  Sheridan,  for  Henry  D.  Law."  Sheridan  absconded 
with  the  money.  Defendant  claims  never  to  have  seen 
the  letter,  and  the  bill  was  handled  by  his  son,  who  was 
his  bookkeeper  and  who  never  read  the  bill  head. 

Point  Involved:  The  authority  of  the  agent  as  de- 
termined by  the  acts  and  notices  of  the  principal  in  ap- 
pointing him. 

Depue,  J. :  ' '  *  *  *  A  principal  is  bound  by  the  acts 
of  his  agent  within  the  authority  he  has  actually  given 
him,  which  includes  not  only  the  precise  act  which  he  ex- 
pressly authorizes  him  to  do,  but  also  whatever  usually 
belongs  to  the  doing  of  it,  or  is  necessary  to  its  perform- 
ance. Beyond  that,  he  is  liable  for  the  acts  of  the  agent 
within  the  appearance  of  authority  which  the  principal 
himself  knowingly  permits  the  agent  to  assume,  or  which 
he  holds  the  agent  out  to  the  public  as  possessing.  For 
the  acts  of  the  agent,  within  his  express  authority  the 
principal  is  liable,  because  the  act  of  the  agent  is  the  act 
of  the  principal.  For  the  acts  of  the  agent,  within  the 
scope  of  the  authority  he  holds  the  agent  out  as  having, 
or  knowingly  permits  him  to  assume,  the  principal  is 
made  responsible ;  because  to  permit  him  to  dispute  the 
authority  of  the  agent  in  such  cases  would  be  to  enable 
him  to  commit  a  fraud  upon  innocent  persons.  In  which- 
ever way  the  liability  of  the  principal  is  established,  it 
must  flow  from  the  act  of  the  principal.  And  when 
established,  it  cannot  on  the  one  hand  be  qualified  by  the 
secret  instructions  of  the  principal  nor  on  the  other  hand 
be  enlarged  only  by  the  unauthorized  representations 
of  the  agent.     *     *     * 

"Where  an  agent  is  intrusted  with  the  possession  of 
goods,  with  an  unrestrained  power  to  sell  (Higgins  v. 
Moore,  6  Bosw.  344)   or  payments  are  made  over  the 


356  AGENCY 

counter  of  the  principals '  store  to  a  shopman  accustomed 
to  receive  money  there  for  his  employer  (Kaye  v.  Brett, 
5  Ex.  269),  the  authority  to  receive  payment  will  be  im- 
plied in  favor  of  innocent  persons,  because  the  principal 
by  his  own  act  gives  the  agent  an  authority  to  receive 
such  payment.  But  if  the  principal  forbids  such  pay- 
ments, and  requires  all  payments  to  be  made  to  himself 
personally,  or  to  a  cashier,  and  gives  a  customer  notice 
thereof,  the  customer  would  have  no  right  to  insist  upon 
the  apparent  rather  than  the  real  authority  of  the  agent. 
"In  the  case  now  before  the  Court,  Sheridan  had  not 
the  possession  of  the  goods.  The  sale  was  made  on 
credit,  and  the  payment  was  made  to  him,  not  over  the 
plaintiff's  counter  at  his  place  of  business,  but  at  de- 
fendant's hotel.  *  *  *"  (The  Court,  here,  holds  that 
the  weight  of  the  evidence  was  that  defendant  got  the 
letter,  but  irrespective  of  that  defendant's  son  got  the 
bill  head,  and  was  defendant's  agent  in  that  respect,  and 
what  he  knew  or  should  have  known  in  respect  to  the 
agent's  limited  authority  was  binding  on  the  defendant. 
Judgment  for  plaintiff.) 

Question  202:  (1.)  State  the  three  classes  of  powers  which, 
as  stated  by  the  Court,  an  agent  may  possess. 

(2.)  May  the  principal  qualify  the  power  of  the  agent  by 
secret  instructions? 

(3.)  May  the  agent  enlarge  his  authority  by  his  own  state- 
ments?   Why? 

(4.)     When  will  the  power  to  receive  payment  be  implied  ? 

Sec.  164.    The  Authority  as  Determined  by  the  Apparent 
Scope  of  the  Appointment. 

Case  No.  203.  Wood  v.  McCain,  7  Ala.  800,  42  Am.  D. 
612. 

Facts:  Stedman,  being  about  to  leave  the  state,  made 
one  Revis  his*" general  agent"  "to  transact  his  business 
in  this  state"  and  delivered  to  Revis  accounts  due  him 
for  medical  services  rendered,  "for  settlement."    Revis 


AUTHORITY  OF  AGENT  357 

as  such  agent  assigned  the  accounts  to  one  Wood,  a  surety 
of  Stedman,  to  be  held  by  Wood  as  indemnity. 

Point  Involved:  Whether  a  power  generally  to  trans- 
act another's  business  and  to  collect  and  settle  accounts 
receivable  gives  any  power  to  assign  such  accounts  to 
principal's  surety  for  his  indemnity.  Generally,  of  the 
powers  of  universal,  general  and  special  agents. 

'  'It  is  supposed  by  the  counsel  for  the  plaintiff  in  error, 
that  as  Revis  was  the  general  agent  of  his  principal,  it 
must  be  presumed  he  was  authorized  to  make  the  assign- 
ment in  question.  This  conclusion  is  by  no  means  a  neces- 
sary sequence  from  the  premises.  General,  are  clearly 
distinguishable  from  universal  agents,  that  is  from  such 
as  may  be  appointed  to  do  all  the  acts,  which  the  principal 
can  personally  do  and  which  he  may  lawfully  delegate 
the  power  to  another  to  do.  'Such  a  universal  agency 
may  potentially  exist;  but  it  must  be  of  the  very  rarest 
occurrence.  And,  indeed,  it  is  difficult,'  says  Mr.  Justice 
Story,  'to  conceive  of  the  existence  of  such  an  agency, 
inasmuch  as  it  would  be  to  make  such  an  agent  the  com- 
plete master,  not  merely  dux  facti,  but  dommus  rerum, 
the  complete  disposer  of  ail  the  rights  and  property  of 
the  principal. '  Such  an  unusual  authority  will  never  be 
inferred  from  any  general  expressions,  however  broad, 
but  the  law  will  restrain  them  to  the  particular  business 
of  the  party,  in  respect  to  which,  it  is  presumed,  his  in- 
tention to  delegate  the  authority  was  principally  directed. 
Thus,  if  a  merchant  in  view  of  his  temporary  absence, 
should  delegate  to  an  agent  his  full  and  entire  authority 
to  sell  his  personal  property,  to  buy  any  property  for  him, 
or  on  his  account,  or  to  make  any  contracts,  or  to  do  any 
other  acts  whatsoever,  which  he  could  do  if  personally 
present — these  general  terms  would  be  limited  to  buying 
or  selling,  connected  with  his  ordinary  business  as  a 
merchant;  and  without  some  more  specific  designation, 
would  not  be  construed,  to  apply  to  a  sale  of  his  house- 
hold furniture,  or  library,  or  the  utensils,  provisions,  and 
other  necessaries  used  in  his  family;  Story  on  Agency, 
20,  21. 


358  AGENCY 

"The  difference  between  a  general  and  special  agent,  is 
said  to  be  this:  The  former  is  appointed  to  act  in  the 
affairs  of  his  principal  generally,  and  the  latter  to  act 
concerning  some  particular  object.  In  the  former  case, 
the  principal  will  be  bound  by  the  acts  of  his  agent,  with- 
in the  scope  of  the  general  authority  conferred  on  him, 
although  those  acts  are  violative  of  his  private  instruc- 
tions and  directions.  In  the  latter  case,  if  the  agent 
exceeds  the  special  authority  conferred  on  him,  the  prin- 
cipal is  not  bound  by  his  acts:  Story  on  Agency,  114; 
Paley  on  Agency,  199 ;  Munn  v.  Commission  Co.,  15  Johns. 
44,  54  (8  Am.  Dec.  219).  It  is  laid  down,  that  an  agent 
employed  to  buy,  has  no  authority  to  sell,  and  vice 
versa:  Story  on  Agency,  81,  82.  So  an  agency  for  the 
purpose  of  accepting  or  indorsing  bills,  or  notes,  does  not 
authorize  the  agent  to  purchase  or  sell  goods  for  his  prin- 
cipal :  Id.  84.  And  an  authority  to  take  a  bond  does  not 
in  itself  embrace  the  power  to  receive  the  money  due 
thereon:  Id.  88;  nor  has  an  agent,  for  the  purpose  of 
receiving  a  debt,  the  power,  ordinarily,  to  receive  it  in 
anything  else  than  money,  and  then  only  when  it  is  ma- 
tured:   Id.  88,  89. 

"In  the  case  at  bar,  the  general  words  are,  'to  transact 
his  (the  principal's)  business  in  this  state,'  but  as  it 
respects  the  books  and  accounts  for  medical  services  ren- 
dered by  Stedman,  these  words  are  restricted,  by  declar- 
ing, that  they  were  delivered  to  the  agent  'for  settle- 
ment.' By  this  we  are  to  understand,  that  Kevis  was 
to  collect,  or  it  may  be,  otherwise  settle  these  demands, 
with  the  persons  from  whom  they  were  due.  It  would 
require  a  most  unwarrantable  extension  of  terms,  to  hold, 
that  they  conferred  the  power  upon  the  agent,  to  assign 
the  books  and  accounts  to  a  surety  of  his  constituent  for 
his  indemnity.  The  citations  we  have  made  upon  this 
point  are  pertinent,  and  most  satisfactorily  show,  that 
the  assignment  in  question  was  not  authorized  by  the 
power  previously  given.  The  assignment  might,  perhaps, 
be  further  objected  to,  for  the  reason,  that  Revis  him- 
self was  an  agent,  with  the  power  to  settle  the  accounts, 


AUTHORITY  OF  AGENT  359 

and  could  not  delegate  his  authority,  or  appoint  a  sub- 
agent  without  the  assent  of  his  principal :  2  Kent's  Com., 
4th  ed.,  633;  1  Livermore  on  Agency,  54,  64;  Story  on 
Agency,  17;  Solly  v.  Rathbone,  2  Mau.  &  Sel.  299;  Coles 
v.  Trecothick,  9  Ves.  251." 

Question  203:  State  the  point  involved  in  this  case,  and  the 
Court's  decision. 

(2.)  What  is  a  "universal  agency?"  a  "general  agency?" 
a  "special  agency?" 

(3.)  What  further  point  of  objection  than  that  the  agent 
had  no  authority  could  be  raised  in  this  case,  if  we  assume  he 
did  have  authority? 

(Note:  It  is  laid  down  in  the  books  generally,  that  "The 
principal  will  be  bound  by  the  acts  of  a  general  agent,  if  the 
latter  acted  within  the  usual  and  ordinary  scope  of  the  business 
in  which  he  was  employed,  notwithstanding  he  may  have  vio- 
lated the  private  instructions  which  the  principal  may  have  given 
him,  provided  the  person  dealing  with  such  agent  was  ignorant 
of  such  violation  and  the  agent  exceeded  his  authority.  *  *  * 
The  authority  of  an  agent  being  limited  to  a  particular  business 
does  not  make  it  special ;  it  may  be  as  general  in  regard  to  that 
as  though  its  range  were  unlimited.  *  *  *  A  special  agent 
is  one  who  is  authorized  to  do  one  or  more  specific  acts,  in  pur- 
suance of  particular  instructions  or  within  restrictions  neces- 
sarily implied  from  the  act  to  be  done."  [Cruzan  v.  Smith  & 
Thompson,  41  Ind.  288.]  On  this  distinction  the  cases  constantly 
base  their  reasoning  whether  an  agent  has  or  not  certain  apparent 
powers.  But  the  true  test  is:  what  has  the  principal  said  or 
done  to  give  an  appearance  of  power  in  the  agent  ?  If  I  appoint 
one  to  sell  a  horse,  obviously  he  has  no  authority  to  buy  a 
horse;  but  if  I  make  him  the  general  manager  of  my  business 
of  buying  and  selling  horses,  I  give  him  an  authority  to  do  all 
those  acts  and  things  which  are  usual  in  that  business  and  which 
are  incidental  thereto,  and  by  the  facts  it  might  be  found  that 
I  had  impliedly  authorized  him  to  buy  for  cash  or  on  credit, 
to  make  warranties  in  the  sales  made.  This  would  be  deter- 
mined by  all  the  facts  surrounding  his  appointment.  In  neither 
ease  can  I  restrict  his  authority  by  secret  instructions,  incon- 
sistent with  his  apparent  power.    In  the  special  agency  few  pow- 


360  AGENCY 

ers  are  implied.  In  the  general  agency  there  are  many  implied 
powers.  But  whatever  power  the  agent  has  must  be  traced  back 
to  something  done,  said  or  written  by  the  principal.  See  the 
following  cases.)  , 

Case  No.  204.  Wilcox  v.  Routh,  9  Smedes  &  Marshall 
(Miss.)  476. 

Facts:    The  facts  are  given  in  the  opinion. 

Point  Involved:  Whether  a  power  of  attorney  speci- 
fying in  detail  the  authority  to  do  numerous  specific  acts 
constitutes  one  a  general  agent  with  respect  to  such  acts 
with  apparent  power  to  do  acts  of  a  closely  similar 
nature. 

Thatcher,  J. :  ' '  The  facts  in  this  case  were  agreed  to 
be  as  follows :  The  note  sued  upon  was  made  by  Ferri- 
day,  and  indorsed  by  Ferriday  as  the  attorney  in  fact  of 
Routh.  The  notice  of  nonpayment  addressed  to  Routh, 
was  left  at  Ferriday 's  counting  house,  in  Natchez.  Routh 
resided  indifferently  in  the  city  of  Natchez  and  near 
Grand  Gulf,  and  used  the  post  offices  at  both  places.  He 
sometimes  called  at  Ferriday 's  counting  house  for  let- 
ters and  papers,  but  more  generally  frequented  another 
store  in  the  same  city.  The  power  of  attorney,  by  virtue 
of  which  Ferriday  indorsed  the  name  of  Routh  to  the 
note  sued  upon  appointed  Ferriday  Routh 's  agent  and  at- 
torney in  fact,  general  and  special,  granting  to  the  attor- 
ney full  power  and  authority  for  him  and  in  his  name  and 
in  the  name  of  his  attorney  for  his  own  use  and  benefit, 
or  for  the  use  and  benefit  of  any  other  persons,  to  make, 
indorse,  draw,  accept  and  negotiate  all  promissory  notes, 
bills  of  exchange,  drafts  and  other  securities,  of  any  and 
every  kind  whatever,  to  issue  letters  of  credit,  to  trans- 
act all  banking  business,  to  make  all  manners  of  renewals 
and  indorsements  of  his  name  on  all  promissory  notes, 
bills  of  exchange,  drafts  or  other  securities  of  any  kind 
whatsoever,  consequent  or  in  any  wise  dependent  upon 
such  renewals,  whether  the  same  be  payable  to  him,  or  to 
his  said  attorney,  or  to  any  other  person  or  persons,  or 


AUTHORITY  OF  AGENT  361 

corporation  or  company  whatsoever.  And  generally  to 
do  all  lawful  acts  and  things  whatsoever,  concerning  or 
in  any  wise  appertaining  to  the  premises,  as  he  might  or 
could  do,  if  he  were  personally  present  and  acting  therein. 

*  'The  first  inquiry  is  whether  this  power  of  attorney 
conferred  upon  Ferriday  the  authority  to  receive  notices 
of  the  protest  of  notes  indorsed  by  him  as  Routh's  at- 
torney, thereby  to  bind  Routh.  I  think  that  no  such 
authority  was  conferred  by  that  power.  The  acts  to  be 
performed  are  enumerated  which  always  draws  the  dis- 
tinction between  a  general  and  special  agency.  2  Kent. 
620.  Although  the  term  ' general '  as  well  as  'special'  is 
employed  in  describing  the  agent  in  the  power  of  attorney 
under  examination,  yet  the  particular  purposes  for  which 
he  was  constituted  agent  being  therein  enumerated,  the 
agency  can  only  be  considered  as  special,  although  it  is 
general  in  reference  to  the  particular  purposes  for  which 
it  is  made.    Anderson  v.  Coonley,  21  Wend.  (N.  Y.)  279. 

"There  is  no  language  in  the  power  expressly  granting 
an  authority  to  the  agent  to  receive  notices  of  protest 
upon  notes  made  in  pursuance  of  it.  Can  such  an  author- 
ity be  legally  presumed  from  its  enumerated  powers? 
"When  an  act  precedes  or  follows  another  as  a  necessary 
and  inevitable  consequence  or  precedent,  and  when  from 
their  very  nature  they  are  inseparable,  the  grant  of  one 
will  necessarily  supply  the  grant  of  the  other ;  but  while 
they  are  distinct  and  separate  acts,  although  entering 
into  the  same  transaction,  the  grant  of  one  does  not  sup- 
ply the  grant  of  the  other. ' ' 

Question  204:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)     Was  the  above  agency  general  or  special?    Why? 

Sec.  165.    Implied  or  Apparent  Powers  of  Agents:  to 
Borrow  Money. 

Case  No.  205.    Consol.  Nat.  Bank  v.  P.  C.  S.  S.  Co.,  95 
Cal.  1. 
Facts:     One   Simpson  was   agent  of  the   defendant 


362  AGENCY 

steamship  company  which  conducted  a  marine  freight  and 
passenger  business  along  the  Pacific  Coast  from  Mexico 
to  Alaska.  G.  P.  &  Co.  at  San  Francisco  were  its  general 
agents,  but  it  had  a  local  agent  at  each  port  on  the  coast 
where  it  did  business,  who  were  under  the  control  of  the 
general  agency.  Simpson  Was  one  of  these  local  agents 
at  the  port  of  San  Diego,  and  plaintiff  conducted  a  bank 
at  that  point.  Simpson  kept  an  account  at  such  bank  in 
the  name  of  "  J.  H.  Simpson,  Agent."  He  deposited  sums 
collected  for  defendants  in  this  bank  and  checked  out  over 
signatures  signed  "J.  H.  Simpson,  Agent,"  the  greater 
portion  of  which  were  payable  to  himself,  and  actually 
paid  to  him.  On  Oct.  1,  1889,  Simpson  had  overdrawn 
his  account  some  $11,404.32,  which  he  was  unable  to  pay 
and  he  was  removed  from  his  position.  Defendant  is 
sued  for  this  amount,  with  interest. 

Point  Involved:  The  circumstances  that  will  raise  an 
implied  or  apparent  authority  on  the  part  of  an  agent, 
to  borrow  money. 

Vanclief,  C. :  "*  *  *  If  Simpson  had  actual  or 
ostensible  authority  to  borrow  money  for  the  defendant, 
the  plaintiff  is  entitled  to  recover;  otherwise  not.  This 
is  the  ultimate  and  pivotal  question  of  fact  presented  for 
decision.  Upon  this  question  the  trial  court  found  for 
the  defendant,  and  I  think  the  finding  was  justified  by 
the  evidence. 

"The  evidence  is  positive  that  no  express  authority  to 
borrow  money  *  *  *  was  ever  given  *  *  *.  But 
counsel  *  *  *  contend,  in  substance,  that  such  au- 
thority was  implied  from  the  necessity  of  borrowing 
money  in  order  to  carry  on  the  business  which  Simpson 
was  employed  and  authorized  to  do.  The  evidence,  how- 
ever, strongly  tends  to  prove  that  no  such  necessity  ever 
existed.    *     *     * 

"As  to  the  implied  power  of  an  agent  to  borrow  money 
on  account  of  his  principal,  the  Court  of  Appeals,  in 
Bickford  v.  Menier,  107  N.  Y.  490,  said:  'If  the  trans- 
action of  the  business  absolutely  required  the  exercise  of 


AUTHORITY  OF  AGENT  363 

the  power  to  borrow  money  in  order  to  carry  it  on  then 
the  power  was  impliedly  conferred  as  an  incident  to  the 
employment;  but  it  does  not  afford  a  sufficient  ground 
for  the  inference  of  such  a  power,  to  say  the  act  proposed 
was  convenient  or  advantageous,  or  more  effectual  in  the 
transaction  of  the  business  provided  for ;  but  it  must  be 
practically  indispensable  to  the  execution  of  the  duties 
really  delegated  in  order  to  justify  its  inference  from 
the  original  employment.     *     *     * ' 

"There  is  no  evidence  of  ostensible  authority." 
(The  court  here  goes  into  the  evidence  to  show  that  the 
defendant  was  not  by  conduct  estopped  to  set  up  the  de- 
fense; that  they  never  knew  of  Simpson's  overdrafts; 
that  they  had  never  in  any  way  ratified  overdrafts  by  him, 
and  that  the  merits  of  the  case  were  with  the  defendant.) 

Questian  205:  When  will  the  power  to  borrow  money  be  im- 
plied as  illustrated  by  the  facts  of  this  case  ? 

Case  No.  206.  Merchants  Nat.  Bank  of  Peoria  v. 
Nichols  &  Shepard  Co.,  223  Illinois  41. 

Facts:  Suit  to  recover  $1023.60,  the  aggregate  of  24 
checks  which  created  an  overdraft  to  that  amount.  The 
checks  creating  such  overdraft  were  signed  "Nichols  & 
Shepard  Co.  by  W.  H.  Harte,  Manager,''  Harte  being  de- 
fendant's agent  at  Peoria.  The  facts  were  that  the  de- 
fendant, to  sell  its  threshing  machinery,  maintained 
eleven  agencies,  established  in  various  states ;  one  of  these 
agencies  was  at  Bloomington  and  then  Peoria ;  Harte  was 
in  charge  and  opened  up  a  bank  account  at  Peoria  in  the 
defendant's  name  and  with  defendant's  knowledge.  Harte 
had  entire  charge  of  the  Peoria  agency,  renting  a  building 
for  the  business,  employing  assistants,  fixing  and  paying 
salaries,  having  charge  of  about  fifteen  traveling  sales- 
men and  one  hundred  local  agents,  and  paid  all  bills,  and 
made  sales,  collections  and  settlements.  He  was  further 
authorized  to  collect  all  money  due  defendant  in  his  dis- 
trict, and  received  checks  and  drafts,  and  endorsed  them 
to  the  bank.    The  funds  with  which  he  carried  on  the 


364  AGENCY 

i 

business  were  received  from  sales  and  settlements  or  sent 
to  him  by  defendant. 

Point  Involved:  The  implied  or  apparent  power  of  an 
agent  to  borrow  money  on  the  facts  given. 

Mr.  Justice  Cartweight  :  * '  *  *  *  The  payment  of 
the  checks  when  there  was  no  funds  of  the  defendant  in 
the  bank  constituted  a  loan  of  the  money  paid,  and  de- 
fendant never  gave  Harte  any  authority  to  borrow  money 
on  its  account  by  that  money  or  any  other.  He  was  sup- 
plied by  the  defendant  with  the  necessary  funds  to  exe- 
cute the  duties  imposed  upon  him,  and  the  only  occasion 
for  overdrawing  the  account  was  his  appropriation  of 
defendant's  money.  There  is  no  claim  that  the  power 
was  expressly  given,  but  the  argument  is  that  the  power 
arose  out  of  the  nature  of  the  agency  and  that  plaintiff 
had  a  right  to  assume  the  power  existed.  It  is  to  be 
remembered  that  persons  dealing  with  an  assumed  agent 
are  bound,  at  their  peril  to  ascertain  not  only  the  fact  of 
the  agency,  but  the  extent  of  the  agent 's  authority.  They 
are  put  upon  their  peril,  by  the  very  fact  that  they  are 
dealing  with  an  agent,  and  must,  at  their  peril,  see  to  it 
that  the  act  done  by  him  is  within  his  power.  It  is  their 
right  and  duty  to  ascertain  the  extent  of  his  power,  and 
to  determine  whether  his  acts  come  within  the  power  and 
are  such  as  to  bind  his  principal.  (Mechem  on  Agency, 
§  276,  Reynolds  v.  Ferree,  86  111.  570 ;  1  Am.  &  Eng.  Ency. 
of  Law, — 2d  ed. — 987.)  An  agent  cannot  confer  power 
upon  himself,  and  therefore  his  agency  or  authority  can- 
not be  established  by  showing  either  what  he  said  or  did. 
(Proctor  v.  Tows,  115  111.  138;  Mullanphy  Savings  Bank 
v.  Schott,  135  id.  655.)  The  source  of  authority  is  the 
principal,  and  the  power  of  the  agent  can  be  proved  only 
by  tracing  it  to  that  source  in  some  word  or  act  of  the 
alleged  principal.  In  this  case  there  was  no  evidence 
tending  to  prove  that  the  power  to  borrow  money  was  an 
incident  of  the  agency.  For  such  an  act  as  that,  an  agent 
must  have  express  authority,  or  some  power  must  be 
expressly  conferred  upon  him  which  cannot  be  otherwise 


AUTHORITY  OF  AGENT  365 

executed.  The  fact  that  the  defendant  carried  on  the  sale 
of  its  products  through  the  medium  of  agencies  dis- 
tributed over  the  country  would  be  no  ground  for  a  con- 
clusion that  the  various  agents  for  making  sales  of  ma- 
chinery and  collecting  the  proceeds  were  clothed  with 
authority  to  borrow  money.  We  held  in  the  case  of  Jack- 
son Paper  Co.  v.  Commercial  Nat.  Bank,  199  111.  151,  that 
proof  that  an  agent  was  the  superintendent  and  manager 
of  a  mill,  having  charge  of  buying  material,  hiring  men 
and  manufacturing  and  selling  paper,  did  not  justify  an 
inference  that  he  had  authority  to  endorse  checks,  and 
surely  the  same  facts  or  the  facts  in  this  case  would  not 
justify  an  inference  that  Harte  had  the  more  unusual 
power  to  borrow  money  and  pledge  the  credit  of  the 
defendant. ' ' 

Question  206:    State  the  facts,  the  question  presented  and  the 

Court's  decision  in  the  above  case. 

f 

Sec.  166.    Implied  or  Apparent  Powers  of  Agents:  to 
Make  or  Endorse  Commercial  Paper. 

Case  No.  207.  Graham  v.  United  States  Savings  Inst., 
46  Mo.  186. 

Facts:    The  facts  are  given  in  the  opinion. 

Point  Involved:  Whether  an  agent  who  has  power  to 
receive  payment  has  implied  or  apparent  authority  there- 
from to  cash  the  checks  payable  to  his  principal's  order. 

Currier,  J.:  "This  suit  is  brought  to  recover  the 
amount  of  two  checks  which  were  drawn  on  the  defend- 
ant by  third  parties  in  favor  of  the  plaintiffs  and  made 
payable  to  their  order.  The  drawers  delivered  the  checks 
to  the  plaintiffs'  collecting  agent,  one  Dixon,  in  settle- 
ment of  certain  bills  which  the  latter  had  in  charge  for 
collection,  being  bills  due  from  the  drawer  of  the  checks 
to  the  plaintiffs.  Dixon  indorsed  the  defendant's  firm 
name  upon  the  checks  and  presented  them  at  the  bank  and 
drew  the  money  upon  them,  which  he  seems  to  have  ap- 


366  AGENCY 

propriated  to  his  own  use,  without  rendering  any  account 
thereof  to  the  plaintiffs.  Thus  far  there  appears  to  be 
no  serious  controversy  about  the  facts. 

"If  Dixon  had  authority,  general  or  special,  to  indorse 
the  checks  in  the  manner  stated,  or  the  defendant  was 
authorized  to  pay  them  without  the  personal  indorse- 
ment of  the  plaintiffs,  it  is  not  contended  that  the  defend- 
ant would  be  liable  in  this  action.  The  verdict  of  the  jury, 
however,  negatives  the  supposition  of  the  existence  of 
such  express  authority.  The  defendant  nevertheless  un- 
dertakes to  deduce  the  authority  from  the  nature  and 
character  of  Dixon 's  general  agency  in  making  collections 
and  the  transaction  of  business  in  behalf  of  the  plaintiffs. 
Their  chief  complaint  of  the  action  of  the  court  below  is 
founded  upon  the  refusal  of  the  court  to  give  the  follow- 
ing instruction,  namely:  'If  the  jury  believe  from  the 
evidence  that  Charles  Dixon  was,  at  the  times  stated  in 
the  petition,  the  clerk  and  collector  of  the  plaintiffs,  and 
that,  as  such,  he  received  from  the  plaintiffs,  among  other 
accounts  for  collection,  two  accounts,  one  against  Kramer 
&  Loth,  and  one  against  Erf  ort  &  Petring,  and  that  he  was 
fully  authorized  and  empowered  to  receive  payment  of 
and  receipt  said  bills  or  accounts,  and  that,  in  pursuance 
of  his  duties  and  authority,  he  received  in  payment  of 
such  accounts  the  checks  set  out  by  the  petition,  and 
afterwards  collected  the  money  on  said  checks  from  the 
defendant,  in  accordance  with  his  authority  to  collect 
said  accounts,  then  they  will  find  for  the  defendant. ' 

"The  logic  of  this  instruction  is  that  Dixon  was  author- 
ized to  indorse  and  collect  the  checks  since  he  was  au- 
thorized to  receive  them  in  lieu  of  cash  in  payment  of  the 
bills  he  held  for  collection.  The  deduction  is  a  non  se- 
quitur.  The  checks  required  the  bank  to  pay  the  sums 
therein  specified  to  such  person  as  the  payee  might  direct. 
But  the  payees  never  directed  payments  to  be  made  to  any 
one,  unless  Dixon  was  their  agent  for  that  purpose ;  and 
such  agency  is  not  inferable  from  the  mere  fact  that  he 
was  their  agent  in  effecting  the  collection,  nor  from  all 
the  facts  recited  in  the  instruction.    His  primary  duty 


AUTHORITY  OP  AGENT  367 

was  to  collect  the  bills,  not  the  checks  given  in  adjust- 
ment of  the  bills. 

''The  question  presented  is  purely  one  of  agency.  Was 
Dixon  the  plaintiffs'  agent  to  indorse  negotiable  paper 
given  in  settlement  of  debts  due  to  his  employers?  He 
was  their  agent  to  adjust  such  claims  and  receive  the 
amounts  due  upon  them,  and  to  do  those  subordinate  and 
incidental  things  usual  and  customary  in  the  accomplish- 
ment of  the  main  purpose  had  in  view,  to-wit :  the  collec- 
tion. That  main  purpose  had  been  accomplished  when  he 
had  received  the  checks  payable  to  his  principals.  His 
duties  as  a  collector  ceased  at  that  point.  His  next  duty 
was  to  account  with  his  employers  for  the  proceeds  of  his 
collections,  and  turn  over  the  checks  to  them,  to  be  dis- 
posed of  as  they  might  judge  proper.  The  indorsement 
of  the  checks  was  no  necessary  incident  of  the  collection 
of  the  accounts.  The  instruction  was,  in  my  opinion,  prop- 
erly refused.  So  was  the  defendant's  second  instruction. 
It  travelled  out  of  the  issue  made  by  the  pleadings.  At 
the  instance  of  the  defendant,  the  Court  directed  the  jury 
to  find  for  it  in  case  they  found  from  the  evidence  that 
Dixon  was  authorized  to  collect  and  receive  payments  of 
checks  payable  to  plaintiffs  at  the  time  the  checks  in  ques- 
tion were  presented  and  paid.  This  fairly  presented  tne 
real  point  in  controversy,  and  in  the  form  selected  by  the 
plaintiff's  counsel." 

Question  207:  (1.)  Has  an  agent  who  has  power  to  receive 
payment  either  in  money  or  paper,  implied  power  therefrom  to 
cash  the  negotiable  paper  made  to  his  principal's  order?    Why? 

(2.)  Was  the  agent  in  the  above  case  a  general  or  special 
agent  ? 

Sec.  167.    Implied  or  Apparent  Powers  of  Agents:  to 
Sell  Personal  Property. 

(Note:    See  this  subject  developed  in  the  cases  on  Sales.) 

Sec.  168.    Implied  or  Apparent  Powers  of  Agents:  tc 
Receive  Payments. 

(See,  also,  Law  v.  Stokes,  supra.) 


368  AGENCY 

Cajse  No.  208.    Greenhood  v.  Keaton,  9  111.  Ap.  183. 

Facts:   The  facts  are  stated  in  the  opinion. 

Point  Involved:  Under  what  circumstances  an  agent 
has  apparent  power  to  receive  payment  of  money  owing 
to  his  principal. 

* 

Lacey,  J. :  '  *  This  was  a  suit  by  appellant  against  ap- 
pellee, brought  for  the  purpose  of  recovering  sixty  dol- 
lars, the  price  of  a  safe,  sold  by  the  former  to  the  latter. 

1  'Appellant  was  a  safe-dealer  in  the  city  of  Chicago, 
and  the  appellee  was  about  starting  a  hotel  in  the  city 
of  Moline,  111. 

"It  appears  from  the  evidence,  and  it  is  not  disputed, 
that  on  the  12th  day  of  Nov.,  1879,  the  appellant  employed 
one  George  W.  Berkley  as  an  agent  or  broker  to  travel 
over  the  country  and  take  orders,  and  sell  his  safe  subject 
to  the  approval  of  appellant.  When  the  order  was  sent 
in,  blank  orders  and  drawings  and  other  papers  were 
placed  in  the  hands  of  Berkley.  The  order  contained  a 
clause  that  the  order  was  subject  to  the  approval  of 
the  appellant.  The  authority  of  Berkley  was  expressly 
limited  to  making  sales  of  safes;  he  was  only  to  obtain 
orders  to  be  sent  to  appellant  subject  to  his  acceptance, 
and  to  be  billed  by  him.  Berkley  was  not  authorized  to 
make  collections;  the  plaintiff  was  to  make  his  own  col- 
lections. In  pursuance  of  this  arrangement  Berkley 
started  out  in  his  employment,  and  on  or  about  the  15th 
of  Nov.,  1879,  made  sale  of  one  of  the  safes  to  appellee 
for  $60,  subject  to  the  approval  of  the  appellant,  the 
appellee  signing  an  order  for  the  safe,  directed  to  the 
appellant  at  Chicago,  in  which  it  was  expressly  provided 
that  the  order  was  subject  to  the  appellant's  approval,, 
and  the  order  was  sent  to  him  in  due  course  of  mail. 
When  the  order  reached  appellant  at  Chicago,  it  was  ap- 
proved, and  the  safe  duly  shipped  to  appellee  and  re- 
ceived by  him.  On  the  date  of  the  shipment,  Nov.  17,  A. 
D.  1879,  a  letter  was  sent  accompanying  it  and  asking  for 
a  remittance  for  the  amount.  On  the  25th  of  the  same 
month  the  appellee  sent  a  letter  to  the  appellant,  answer- 


AUTHORITY  OF  AGENT  369 

ing  that  the  payment  for  the  safe  was  to  be  in  thirty  days 
which  was  considered  cash. 

' '  On  the  26th  of  the  same  month  the  appellant  answered 
that  order  should  have  stated  that  it  was  to  be  30  days, 
but  according  to  appellee's  demand,  asked  him  to  remit 
to  them  in  thirty  days  after  the  date  of  the  receipt  of 
the  safe.  The  thirty  days  having  expired,  the  appellants 
drew  a  sight  draft  on  appellee  and  sent  it  forward  for 
collection,  to  which  the  appellee  replied  that  he  had  paid 
for  the  safe  on  the  13th  of  December  of  the  same  year,  to 
Gr.  W.  Berkley,  the  appellant's  agent,  from  whom  he  had 
purchased  the  safe.  At  the  time  of  the  payment  to  Berk- 
ley he  had  been  out  of  appellant's  employment  about  two 
weeks.  The  only  question  is,  had  Berkley  the  power  to 
collect  the  money?  If  he  had,  then  the  judgment  is  cor- 
rect ;  if  he  had  not,  then  the  plaintiff  should  recover. 

"We  think,  under  the  circumstances,  Berkley  had  no 
power  to  collect  the  money  from  appellee,  and  that  pay- 
ment to  Berkley  by  appellee  did  not  discharge  the  debt 
due  appellant. 

"The  power  to  'solicit'  and  take  contracts  does  not 
carry  with  it  the  power  to  collect.  No  prudent  man  could 
reasonably  infer  from  the  facts  disclosed  in  evidence,  that 
Berkley  had  the  power  to  collect  the  price  of  the  safe. 
The  rule  here  recognized  is  well  laid  down  in  the  follow- 
ing cases.  Abrahams  v.  Weiller,  87  111.  179;  Clark  v. 
Smith,  88111.  298." 

Question  208:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  From  the  above  case  and  the  case  of  Law  v.  Stokes, 
deduce  the  rule  as  to  the  agent's  apparent  authority  to  receive 
the  payment  of  his  principal's  debts. 

Case  No.  209.    Bailey  v.  Pardridge  et  al.,  134  111.  188. 

"The  question  presented  by  this  record  is  one  not  en- 
tirely free  from  difficulty.  As  to  the  main  features  of  the 
case  there  is  no  substantial  controversy  in  regard  to  the 
facts.    Holmes  had  possession  of  the  samples,  and  claimed 


370  AGENCY 

authority  to  sell  and  receive  the  pay  therefor.  The  de- 
fendants purchased  the  samples,  paid  Holmes  for  them  by 
check,  payable  to  Joel  J.  Bailey  &  Co.  or  bearer,  and  he 
delivered  the  goods.  So  far,  it  appears,  the  defendants 
acted  in  perfect  good  faith,  relying  upon  the  representa- 
tions of  Holmes.     *     *     * 

"But  it  may  be  said  that  Holmes  was  not  empowered 
by  the  plaintiffs  to  sell  the  goods — that  he  merely  held  the 
samples  as  a  means  to  solicit  orders.  A  sufficient  answer 
to  this  proposition  is,  that  the  acts  of  plaintiffs  since  the 
sale  may  be  regarded  as  a  ratification.  Where  the  owner 
whose  goods  have  been  sold  without  authority,  sues  the 
purchaser  for  the  amount  of  the  contract  price  for  which 
the  goods  were  sold,  the  sale  although  unauthorized  will 
be  regarded  as  ratified.     *     *     * " 

Question  209 :  Why  in  this  ease  were  the  defendants  precluded 
from  raising  the  point  that  Holmes,  the  agent,  had  no  power  to 
receive  payment  for  the  samples?  Would  you  infer  he  had 
power  to  sell  the  samples  ? 

Sec.  169.    Implied  or  Apparent  Power  of  Agent:  to  Ex- 
tend Credit  on  Sales. 

Case  No.  210.    Komorowski  v.  Krumdick,  56  Wis.  23. 

Facts:  Grist  was  the  agent  of  Krumdick  and  Muir  to 
buy  wheat  for  them  with  cash  furnished  him  for  that  pur- 
pose. He  bought  wheat  from  Komorowski  on  credit,  and 
subsequently  left  the  country  without  paying  for  the 
wheat.  Suit  by  Komorowski  against  Krumdick  and  Muir 
for  the  price  of  the  wheat.    Further  facts  in  the  opinion. 

Point  Involved:  Whether  an  agent  to  buy  has  appar- 
ent power  to  buy  on  credit,  in  the  absence  of  other  circum- 
stances authorizing  a  reasonable  belief  that  he  had  such 
power. 

Taylor,  J. :  "  *  *  *  The  power  of  Grist  as  the  agent 
of  the  defendants  was  limited  to  purchases  for  cash,  and 
nothing  else,  and  he  was  expressly  prohibited  from  tak- 


AUTHORITY  OF  AGENT  371 

ing  wheat  in  store  on  their  account.  When  the  principal 
furnishes  his  agent,  to  buy  on  his  account,  sufficient  funds 
to  make  the  purchases,  the  law  does  not  raise  any  pre- 
sumption that  such  agent  may  bind  his  principal  by  a  pur- 
chase on  credit,  but  the  contrary.  And  in  such  case  the 
principal  will  not  be  bound  by  a  purchase  made  on  credit, 
unless  he  has  knowledge  of  the  fact,  and  does  something 
in  ratification  thereof,  or  unless  it  be  shown  that  it  is  the 
custom  of  the  trade  to  buy  upon  credit.  The  defendants 
furnished  Grist  the  money  to  pay  for  all  purchases  made 
by  him  on  their  account,  and  the  evidence  tends  to  show 
that  Grist  did  not  deliver  to  them  enough  wheat  to  cover 
the  amount  of  their  advance. 

' '  There  is  nothing  in  the  evidence  tending  to  show  that 
the  defendants  held  Grist  out  as  having  any  other  powers 
as  their  agent  than  those  expressly  conferred  upon  him. 
There  is  no  evidence  that  the  defendants  had  ever  ratified 
any  purchase  by  Grist  for  them  upon  credit.  There  is  no 
evidence,  in  fact,  that  he  ever  made  any  purchase  except 
of  the  plaintiff  upon  credit.  Nor  is  there  any  evidence 
that  an  agent  to  purchase  wheat  for  a  principal  at  a  given 
place,  and  to  ship  the  same  to  the  principal  at  another 
place,  has  any  implied  authority  to  make  the  purchases 
upon  the  credit  of  the  principal.  There  is  nothing  in  the 
nature  of  the  business  itself,  in  the  absence  of  any  evi- 
dence as  to  the  custom  of  the  trade,  which  would  justify 
a  court  in  determining  as  a  question  of  law  that  an  agent 
to  purchase  wheat  or. other  grain  may  bind  his  principal 
by  a  purchase  on  credit. 

"An  agent  to  buy  wheat  or  other  grain  must,  in  order 
^o  bind  his  principal,  who  furnishes  in  advance  the  funds 
to  make  the  purchases,  buy  for  cash,  unless  he  has  ex- 
press power  to  buy  upon  credit,  or  unless  the  custom  of 
the  trade  is  to  buy  upon  credit;  and  in  the  absence  of 
express  authority,  or  proof  of  the  custom  of  the  trade  to 
buy  on  credit,  such  agent  cannot  bind  his  principal  by 
a  purchase  upon  credit  of  a  principal.  Paley  on  Ag.  161, 
162;  Jaquest  v.  Todd,  3  Wend.  83;  Schimmelpennick  v. 
Bayard,  1  Pet.  264;  Story  on  Ag.  225,  226;  Berry  v. 


372  AGENCY 

Barnes,  23  Ark.  411;  Stoddard  v.  Mclnvalin,  7  Rich.  (S. 
C.)  525 ;  Whart  on  Ag.,  186 ;  Adams  v.  Boies,  24  Iowa,  96 ; 
Tabor  v.  Cannon,  8  Met.  456 ;  Temple  v.  Pomroy,  4  Gray, 
128 ;  Bank  v.  Bugbee,  1  Abb.  Ch.  App.  86.     *     *     * 

' '  If  the  evidence  is  sufficient  to  show  a  sale  upon  credit 
to  Grist  as  agent  of  the  defendants,  and  that  the  wheat 
was  delivered  to  the  defendants,  and  received  by  them  of 
Grist,  still  they  would  not  be  liable  to  the  plaintiff  unless 
they  received  the  wheat  knowing  it  had  been  bought  upon 
credit,  or  they  had  received  the  wheat  of  Grist  knowing 
they  had  no  funds  in  his  hands  at  the  time  sufficient  to 
pay  for  the  same.  If  they  furnished  money  to  their  agent 
sufficient  at  all  times  to  pay  for  all  the  wheat  they  received 
by  him,  they  had  the  right  to  suppose  that  all  the  wheat 
bought  by  Grist  for  them  was  paid  for  at  the  time  it  was 
delivered  to  them,  and,  if  he  had  not  in  fact  paid  for  it 
they  would  only  be  liable  to  the  seller  under  the  circum- 
stances above  stated.     *     *     * 

"The  judgment  of  the  circuit  court  is  reversed  and  the 
cause  remanded  for  a  new  trial." 

Question  210:  (1.)  Has  an  agent  who  is  appointed  to  buy, 
the  apparent  power  for  that  reason  alone,  to  buy  on  credit? 

(Note :  The  Court  in  its  statement  that  the  agent  has  no  power 
to  buy  on  credit  unless  he  has  express  authority  or  it  is  the  custom 
of  the  trade,  restricts  the  rule  rather  too  much.  By  placing  him 
in  a  position  from  the  circumstances  of  which  it  could  be  fairly 
and  reasonably  supposed  he  had  that  power,  the  principal  could 
not  assert  that  he  did  not  have  it.) 

Sec.  170.    Implied  or  Apparent  Power  of  Agent  Having 
Authority  to  Sell,  to  Warrant  the  Thing  Sold. 

Case  No.  211.    Johns  v.  Jaycox,  67  Wash.  403. 

Facts:  Johns  sues  to  recover  the  price  of  200  talk- 
ing machines  sold  by  him  to  Jaycox  and  Co.  The  machines 
were  purchased  by  Jaycox  and  Co.  to  give  away  to  their 
customers,  upon  a  promise  by  Howard,  the  salesman 


AUTHORITY  OF  AGENT  373 

who  made  the  sale,  that  the  defendant  would  sell  25  rec- 
ords to  each  machine  given  away.  This  warranty  was  re- 
duced to  writing.  Defense :  breach  of  the  warranty.  The 
agent  had  no  express  power  to  make  the  promise  in  ques- 
tion. (The  point  of  ratification  was  raised,  and  disposed 
of  by  the  Court  against  the  purchasers.) 

Point  Involved:  The  apparent  power  of  an  agent  hav- 
ing authority  to  sell  to  warrant  the  thing  sold. 

Ellis,  J.:    "#     *     * 

''There  is  much  seeming  confusion  in  the  adjudicated 
cases  upon  this  question.  There  are  decisions  which  hold 
that  an  agent  upon  whom  general  authority  to  sell  is  con- 
ferred will  be  presumed  to  have  authority  to  warrant,  un- 
less the  contrary  appears.  Talmage  v.  Bierhause,  103 
Ind.  270,  2  N.  E.  716;  Woodford  v.  McClenahan,  9  111. 
85 ;  Alpha  Mills  v.  Watertown  Engine  Co.,  116  N.  C.  797, 
21  S.  E.  917;  Dennis  v.  Ashley's  Admr's,  15  Mo.  315; 
Milburn  v.  Belloni,  34  Barb.  607;  Manley  v.  Ackler,  76 
Hun  546;  Schuchardt  v.  Aliens,  1  Wall.  359. 

"But  an  examination  of  those  cases  shows  that,  while 
announcing  a  very  broad  rule,  they  in  reality,  when  ap- 
plied to  the  given  facts,  go  only  to  the  extent  that  the 
implied  power  of  warranty  by  the  agent  upon  which  a 
purchaser  may  rely  extends  to  those  things  necessary  to 
consummate  the  contract  and  usually  incident  thereto 
and  relating  to  the  title,  quality  or  condition  of  the  thing 
sold.  In  none  of  them  was  the  rule  actually  applied  as 
authorizing  warranties  so  extraordinary  as  that  here 
presented.  A  careful  consideration  of  the  authorities 
cited  in  the  briefs,  as  well  as  an  independent  search, 
leads  us  to  the  conclusion  that  the  rule  laid  down  in  31 
Cyc.  as  the  one  supported  by  the  more  numerous  and 
more  recent  decisions  is  also  the  one  in  consonance  with 
the  better  reason.    It  is  as  follows : 

"  'The  rule  which  is  supported  by  the  more  numerous 
and  more  recent  decisions  is  that  if  in  the  sale  of  that 
kind  or  class  of  goods  which  the  agent  is  empowered  to 
sell  it  is  usual  in  the  market  to  give  a  warranty,  the 


374  AGENCY 

agent  may  give  that  warranty  in  order  to  effect  a  sale, 
and  the  law  presumes  that  he  has  such  authority;  and 
that  if  an  agent  with  express  authority  to  sell  has  no 
actual  authority  to  warrant,  no  authority  can  be  im- 
plied where  the  property  is  of  a  description  not  usually 
sold  with  warranty.  *  *  *  The  implied  power  of 
an  agent  to  warrant  title  and  quality  rests  upon  the  ne- 
cessity and  propriety  of  such  warranties  in  the  sale  of 
goods.  It  is  not  therefore  to  be  extended  to  other  war- 
ranties of  an  extraordinary  sort,  however  impossible 
the  agent  may  find  it  to  make  a  sale  without  giving  such 
warranties.'    31  Cyc.  1353,  1355,  1356. 

"The  correct  principle,  briefly  stated,  is  that  an  agent 
under  general  employment  to  make  sales  is  impliedly 
authorized  to  employ  only  those  means  for  the  purpose 
usual  to  the  business,  and  that  the  purchaser  cannot 
safely  assume  that  he  has  authority  to  make  any  extraor- 
dinary guaranty  or  warranty,  or  one  beyond  the  usage  of 
the  business  in  which  the  agent  is  employed.  Upton  v. 
Suffolk  County  Mills,  11  Cush.  586,  59  Am.  Dec.  163; 
Wait  v.  Borne,  123  N.  Y.  592,  25  N.  E.  1053 ;  Bierman  v. 
City  Mills  Co.,  10  Misc.  Rep.  140,  30  N.  Y.  Supp.  929; 
Hayner  &  Co.  v.  Churchill,  29  Mo.  App.  676 ;  Palmer  v. 
Hatch,  46  Mo.  585;  Reese  v.  Bates,  94  Va.  321,  26  S.  E. 
865;  Waupaca  Elec.  Light  &  R.  Co.  v.  Milwaukee  Elec. 
R.  &  Light  Co.,  112  Wis.  469;  88  N.  W.  308;  Troy  Gro- 
cery Co.  v.  Potter  &  Wrightington,  139  Ala.  359,  36  South. 
12;  Anderson  v.  Bruner,  112  Mass.  14. 

"The  rule  thus  stated  appeals  to  us  as  the  one  best 
calculated  to  preserve  that  just  balance  which  the  law  is 
intended  to  maintain  between  a  reasonable  protection  of 
the  principal  from  the  unauthorized  acts  of  his  agent, 
and  a  reasonable  protection  of  the  purchaser  from  an  un- 
warranted repudiation  by  the  principal  of  the  acts  of  the 
agent.  We  have  been  cited  to  no  authority,  and  a  careful 
search  has  revealed  none,  in  which  it  has  ever  been  held 
that  an  agent  employed  to  make  sales  at  wholesale  has 
an  implied  authority  not  only  to  warrant  the  quality  of 
the  thing  sold  but  also  to  guarantee  that  the  purchaser 


AUTHORITY  OF  AGENT  375 

will  make  sales  thereof  at  retail  in  any  particular  amount 
or  at  any  given  profit.  A  more  extraordinary  guaranty 
can  hardly  be  imagined.  We  can  conceive  of  no  sound 
principle  upon  which  such  a  holding  could  rest." 

Question  211:  (1.)  State  the  question  arising  in  this  case 
and  the  Court's  decision. 

(2.)  To  what  warranties  would  the  apparent  power  of  the 
agent  be  confined  ? 

(3.)  A  had  a  horse  which  he  desired  to  sell.  He  employed 
B  as  his  special  agent  to  sell  the  horse,  saying  nothing  about 
warranties.  B  sold  the  horse  on  inspection  to  C,  warranting  him 
to  be  sound.  The  horse  was  unsound.  Can  C  recover  of  B? 
(Brady  v.  Todd,  9  C.  B.  N.  S.  592.) 

(Note:  The  question  of  the  apparent  or  implied  power  of  the 
agent  to  warrant  must  not  be  confused  with  the  question  whether 
there  is  an  implied  warranty  in  a  sale  regardless  of  whether  it 
is  made  by  principal  or  agent.  Thus  in  the  law  of  Sales  of  Per- 
sonal Property  (Division  III,  post),  we  will  find  that  in  a  sale 
there  may  be  certain  implied  warranties,  and  this  is  determined 
by  the  character  of  a  sale  whether  made  by  principal  or  agent. 
Thus,  a  sale  of  goods  carries  with  it  the  implied  warranty  of 
title,  goods  sold  by  sample  are  impliedly  warranted  to  be  equiv- 
alent to  the  sample,  goods  sold  by  description  by  a  manufac- 
turer are  warranted  to  be  merchantable,  etc.  Our  inquiry  at 
this  point  is  the  power  of  an  agent  to  expressly  warrant  that  the 
thing  sold  has  virtues  that  are  not  implied  from  the  mere  fact 
of  sale.  Undoubtedly,  the  courts  themselves  have  not  always 
kept  this  distinction  in  mind. 

On  the  apparent  or  implied  power  of  an  agent  to  bind  the 
principal  on  an  express  warranty,  the  authorities  are  not  in  strict 
accord.  Some  cases  hold  that  in  a  general  power  to  sell  there  is 
a  power  to  make  usual  warranties.  Woodford  v.  McClenahan, 
9  111.  85.  Other  cases  hold  that  from  a  mere  power  to  sell,  unac- 
companied with  other  circumstances  giving  the  agent  apparent 
power  to  warrant,  an  agent  has  no  apparent  power  to  make 
express  warranties.    Wait  v.  Borne,  123  N.  Y.  603.) 


CHAPTER    TWENTY-SEVEN 

RIGHTS  OP  THIRD  PERSON  AGAINST  AN  UNDIS 
CLOSED  PRINCIPAL 


§  171.  Undisclosed     principal     may,  §  174.  Exceptions    based    upon    the 

when    discovered,    be    held  state  of  accounts  between 

by  the  third  party.  principal  and  agent. 

§  172.  Exception  in  case  of  negoti-  §  175.  Right   ceases    on   election    to 

able  instruments.  hold  agent. 

§  173.  Exception    in   case   of   sealed 
instruments. 


Sec.  171.    Undisclosed  Principal  May,  When  Discovered, 
Be  Held  by  Third  Party. 

Case  No.  212.    Kayton  v.  Barnett,  116  N.  Y.  625. 

Facts:  This  action  was  brought  to  recover  a  balance 
of  the  purchase  price  alleged  to  be  due  for  certain  prop- 
erty sold  by  plaintiffs  to  defendants.  On  March  17,  1881, 
plaintiffs  sold  and  delivered  to  one  Wm.  B.  Bishop  sev- 
eral machines  and  assigned  to  him  letters  patent  for 
$4,500.  Bishop  paid  $3,000  on  delivery,  and  afterwards 
died  insolvent  without  having  paid  the  balance.  Bishop 
was  defendants'  agent,  but  defendants  were  undisclosed 
at  the  time  and  plaintiffs  dealt  with  Bishop  as  principal. 

Point  Involved:  Whether  when  a  person  deals  with 
another  who  does  not  disclose  his  agency,  the  principal 
may  upon  discovery  be  held  on  the  contract  with  the 
agent. 

Follett,  Ch.  J. :  When  the  goods  are  sold  on  credit 
to  a  person  whom  the  vendor  believes  to  be  the  purchaser, 

376 


UNDISCLOSED  PRINCIPAL  377 

and  he  afterwards  discovers  that  the  person  credited 
bought  as  agent  for  another,  the  vendor  has  a  cause  of 
action  against  the  principal  for  the  purchase-price.  The 
defendants  concede  the  existence  of  this  general  rule  but 
assert  that  it  is  not  applicable  to  this  case,  because,  while 
Bishop  and  the  plaintiffs  were  negotiating,  they  stated 
they  would  not  sell  the  property  to  the  defendants,  and 
Bishop  assured  them  he  was  buying  for  himself  and  not 
for  them.  It  appears  by  evidence,  which  is  wholly  uncon- 
tradicted, that  the  defendants  directed  every  step  taken 
by  Bishop  in  his  negotiations  with  plaintiffs;  that  the 
property  was  purchased  for  and  delivered  to  the  defend- 
ants, who  have  ever  since  retained  it ;  that  they  paid  the 
$3,000  towards  the  purchase-price,  and  agreed  with 
Bishop,  after  the  notes  had  been  delivered,  to  hold  him 
harmless  from  them.  Notwithstanding  the  assertion  of 
the  plaintiffs  that  they  would  not  sell  to  the  defendants, 
they,  through  the  circumvention  of  Bishop  and  the  de- 
fendants, did  sell  the  property  to  the  defendants,  who 
have  had  the  benefit  of  it,  and  have  never  paid  the  re- 
mainder of  the  purchase-price  pursuant  to  their  agree- 
ment. Bishop  was  the  defendants'  agent,  Bishop's 
mind  was,  in  this  transaction,  the  defendants'  mind, 
and  so  the  minds  of  the  parties  met,  and  the  defendants 
having,  through  their  own  and  their  agent's  deception, 
acquired  the  plaintiffs'  property  by  purchase,  cannot 
successfully  assert  that  they  are  not  liable  for  the 
remainder  of  the  purchase-price  because  they,  through 
their  agent,  succeeded  in  inducing  the  defendants  to  do 
that  which  they  did  not  intend  to  do,  and,  perhaps,  would 
not  have  done  had  the  defendants  not  dealt  disingen- 
uously. 

Question  212:  What  is  the  rule  as  to  the  right  of  the  third 
person  to  hold  an  undisclosed  principal  ?  Illustrate  by  the  facts 
of  this  case. 

Case  No.  213.    Watteau  v.  Fenwick,  [1893]  1  Q.  B.  346. 
Facts:    The  facts  are  stated  in  the  opinion. 


378  AGENCY 

Point  Involved:  Whether  an  undisclosed  principal  can 
be  held  where  he  has  given  an  agent  general  authority 
to  conduct  a  business  for  him,  but  limited  that  authority 
with  instructions  inconsistent  with  the  general  character 
of  the  agency  as  it  would  appear  were  it  not  undisclosed. 

Wills,  J. :  "  The  plaintiff  sues  the  defendants  for  the 
price  of  cigars  supplied  to  the  Victoria  Hotel,  Stockton- 
upon-Tees.  The  house  was  kept,  not  by  the  defendants, 
but  by  a  person  named  Humble,  whose  name  was  over  the 
door.  The  plaintiff  gave  credit  to  Humble,  and  to  him 
alone,  and  had  never  heard  of  the  defendants.  The  busi- 
ness, however,  was  really  the  defendants',  and  they  had 
put  Humble  into  it  to  manage  it  for  them,  and  had  for- 
bidden him  to  buy  cigars  on  credit.  The  cigars,  however, 
were  such  as  would  usually  be  supplied  to  and  dealt  in 
at  such  an  establishment.  The  learned  county  court 
judge  held  that  the  defendants  were  liable.  I  am  of  opin- 
ion that  he  was  right. 

''There  seems  to  be  less  of  direct  authority  on  the  sub- 
ject than  one  would  expect.  But  I  think  that  the  Lord 
Chief  Justice  during  the  argument  laid  down  the  correct 
principle,  viz.,  once  it  is  established  that  the  defendant 
was  the  real  principal,  the  ordinary  doctrine  as  to  prin- 
cipal and  agent  applies — that  the  principal  is  liable  for 
all  the  acts  of  the  agent  which  are  within  the  authority 
usually  confided  to  an  agent  of  that  character,  notwith- 
standing limitations,  as  between  the  principal  and  the 
agent,  put  upon  that  authority.  It  is  said  that  it  is  only 
so  where  there  has  been  a  holding  out  of  authority — which 
cannot  be  said  of  a  case  where  the  person  supplying  the 
goods  knew  nothing  of  the  existence  of  a  principal.  But 
I  do  not  think  so.  Otherwise,  in  every  case  of  undis- 
closed principal,  or  at  least  in  every  case  where  the  fact 
of  there  being  a  principal  was  undisclosed,  the  secret  limi- 
tation of  authority  would  prevail  and  defeat  the  action  of 
the  person  dealing  with  the  agent  and  then  discovering 
that  he  was  an  agent  and  had  a  principal. 

"But  in  the  case  of  a  dormant  partner  it  is  clear  law 


UNDISCLOSED  PRINCIPAL  379 

that  no  limitation  of  authority  as  between  the  dormant 
and  active  partner  as  to  things  within  the  ordinary  au- 
thority of  a  partner.  The  law  of  partnership  is,  on  such 
a  question,  nothing  but  a  branch  of  the  general  law  of 
principal  and  agent,  and  it  appears  to  me  to  be  undis- 
puted and  conclusive  on  the  point  now  under  discussion. 

Question  213:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

(Note:    Accord:    Hubbard  v.  Tenbrook,  124  Pa.  St.  291.) 

Case  No.  214.     Merrill  v.  Kenyon,  48  Conn.  314. 

Park,  0.  J. :  "  #  *  *  exception  is  taken  to  that  part 
of  the  charge  [in  the  court  below]  in  which  the  judge 
said:  'If  the  plaintiffs  knew,  while  they  were  furnish- 
ing the  goods,  that  Hoyle  was  an  agent,  but  did  not  know 
whose  agent  he  was,  the  same  rule  applied  as  if  they  did 
not  know  that  he  was  an  agent  at  all.'  [The  Court  here 
reviews  authorities  to  show  that  this  charge  correctly 
stated  the  law.] " 

Question  214:  State  the  rule  of  law  announced  by  the  above 
case. 

Sec.  172.    Exception  in  Case  of  Negotiable  Instruments. 

(Note:  Only  a  party  to  a  negotiable  instrument  can  sue  or 
be  sued  thereupon.     See  cases  198  and  199,  supra.) 

Sec.  173.    Exception  in  Case  of  Sealed  Instruments. 

(Note:  It  is  also  the  common  law  that  only  a  party  to  a 
sealed  instrument  can  sue  or  be  sued  thereupon.  If,  however, 
the  seal  is  unnecessary  and  may  be  rejected  as  surplusage,  the 
law  of  undisclosed  principal  will  apply  thereto.) 

Sec.  174.    Exception  Based  upon  the  State  of  Accounts 
Between  Principal  and  Agent. 

Case  No.  215.  Laing  v.  Butler,  37  Hun  (44  N.  Y.  Sup.) 
144. 


380  AGENCY 

Facts:  Suit  to  recover  the  sum  of  $867.23  as  the  con- 
tract price  of  a  quantity  of  hides  sold  by  plaintiffs  to 
Edward  F.  Smith  who  was  the  undisclosed  agent  of  the 
defendants.  Defendants  had  furnished  Smith  with  the 
money  for  the  hides,  but  he  bought  upon  credit. 

Point  Involved:  Whether  an  undisclosed  principal  who 
has  settled  with  his  agent  for  the  goods  bought  under  the 
agency,  can  be  held  after  such  settlement  by  the  third 
person. 

Haight,  J. :    "  *     *     * 

'  'We  have  thus  briefly  alluded  to  some  of  the  authori- 
ties both  in  England  and  in  this  country  which  bear  upon 
the  question  under  consideration.  They  are  the  nearest  in 
point  of  any  which  we  have  been  able  to  discover.  From 
them,  it  appears  to  us  that  where  an  agent  buys  in  his 
own  name,  but  for  the  benefit  of  his  principal,  without 
disclosing  the  name  of  the  principal  the  rule  is  that  the 
principal  as  well  as  the  agent  will  be  bound,  provided 
the  goods  are  received  by  the  principal,  if  the  agent  in 
making  the  purchase  acted  within  his  power  as  agent; 
but  that  this  rule  is  subject  to  the  following  limitations 
and  exceptions:  First,  the  purchase  of  the  agent  must 
be  within  the  power  conferred  upon  him  by  his  principal, 
or  it  must  be  shown  that  the  principal  subsequently  rati- 
fied his  acts.  Second,  if  the  principal  furnished  the 
agent  with  the  money  with  which  to  make  the  purchase 
before  the  purchase,  and  the  agent  should,  without  his 
knowledge,  purchase  the  property  upon  credit  without 
disclosing  his  principal,  that  the  principal  will  not  be 
bound ;  and,  Third,  where  the  purchase  has  been  made  by 
the  agent  upon  credit,  authorized  by  the  principal,  but 
without  disclosing  his  name,  and  payment  is  subsequently 
made  by  the  principal  to  the  agent  in  good  faith  before  the 
agency  is  disclosed  to  the  seller,  then  the  principal  would 
not  be  liable.  In  the  case  under  consideration,  it  appears 
that  the  defendants  authorized  Smith  to  purchase  the 
hides  for  them ;  that  they  advanced  the  money  to  him  with 
which  to  make  the  purchases  they  had  authorized.    The 


UNDISCLOSED  PRINCIPAL  381 

plaintiff  in  selling  the  hides  to  Smith,  sold  to  him  upon 
his  individual  credit  and  promise  to  pay.  The  case 
therefore  appears  to  us  to  be  with  the  exceptions  to  the 
rule  mentioned,  and  it  consequently  follows  that  the  plain- 
tiff is  not  entitled  to  recover. ' ' 

Sec.  175.    Right  Ceases  on  Election  to  Hold  the  Agent. 

Case  No.  216.    Kingsley  v.  Davis,  104  Mass.  178. 

Morton,  J. :  "*  *  *  The  general  principle  is  un- 
disputed, that  when  a  person  contracts  with  another  who 
is  in  fact  an  agent  of  an  undisclosed  principal  he  may, 
upon  discovery  of  the  principal,  resort  to  him,  or  to  the 
agent  with  whom  he  dealt,  at  his  election.  But  if,  after 
having  come  to  a  knowledge  of  all  the  facts  he  elects  to 
hold  the  agent,  he  cannot  afterwards  resort  to  the  princi- 
pal. In  the  case  at  bar,  it  is  admitted  that  the  plaintiffs 
after  all  the  facts  became  known  to  them,  obtained  a  judg- 
ment against  John  J.  Davis  [the  agent]  upon  the  same 
cause  of  action  for  which  this  suit  is  brought.  We  are 
of  opinion  ,that  this  was  conclusive  evidence  of  an  elec- 
tion to  resort  to  the  agent,  to  whom  the  credit  was  origi- 
nally given,  and  is  a  bar  to  this  action  against  the  prin- 
cipal. ' ' 

Question  216:  What  is  the  doctrine  of  election  as  to  the  right 
to  hold  an  undisclosed  principal  ?  What  in  this  case  was  held  to 
show,  conclusively,  an  election? 

(Note:  Prosecuting  to  final  judgment  with  full  knowledge 
of  the  facts  is  in  law  an  election.  But  ordinarily  an  election  is 
a  question  of  fact  for  the  jury.) 


CHAPTER    TWENTY-EIGHT 

KNOWLEDGE  OF  THE  AGENT  AS  KNOWLEDGE 
OF  THE  PRINCIPAL 

§  176.  Notice  to  an  agent  is  notice  §  179.  Not  notice  when  agent  not  at 

'     to  the  principal.  liberty  to  disclose. 

§  177.  Such  notice  must  be  within  §  180.  Not    notice    where    agent    is 

the  scope  of  the  agency.  acting    adversely    to    prin- 

§  178.  Time   at   which   notice   must  cipaL 

be  given. 

Sec.  176.    Notice  to  Agent  Is  Notice  to  Principal. 

Case  No.  217.  Jenkins  Bros.  Shoe  Co.  v.  G.  V.  Ren- 
frow  &  Co.,  151  N.  C.  323. 

Facts:  The  shoe  company  sued  defendants,  as  part- 
ners, to  recover  an  amount  due  it  for  goods  sold  and  de- 
livered. Defendant  T.  J.  Renf  row  contends  that  he  is  not 
liable  on  the  ground  that  before  the  sale,  to-wit,  on  March 
28,  1907,  the  partnership  was  dissolved,  of  which  the 
plaintiff  had  notice.  The  order  was  taken  by  the  shoe 
company's  traveling  salesman,  April  4,  1907,  subject  to 
acceptance  by  the  company,  and  the  goods  were  de- 
livered in  May.  The  traveling  salesman  testified  he  re- 
ceived notice  when  he  took  the  order.  He  did  not  com- 
municate his  knowledge  to  his  principal. 

Point  Involved:  When  notice  to  an  agent  is  notice  to 
the  principal;  whether  a  traveling  salesman  in  selling 
goods  has  a  duty  to  impart  notice  of  dissolution  of  a  part- 
nership from  whose  successor  he  takes  an  order. 

Manning,  J.:     "*     *     * 

"In  Mechem  on  Agency,  sec.  721,  the  learned  author 

382 


NOTICE  TO  AGENT  383 

deduces  the  following  rule  from  the  authorities:  'The 
law  imputes  to  the  principal  and  charges  him  with  all 
notice  or  knowledge  relating  to  the  subject-matter  of  the 
agency  which  the  agent  acquires  or  obtains  while  acting 
as  such  agent  and  within  the  scope  of  his  authority  or 
which  he  may  previously  have  acquired,  and  which  he 
then  had  in  mind,  or  which  he  had  acquired  so  recently  as 
to  reasonably  warrant  the  assumption  that  he  still  re- 
tained it.  Provided,  however,  that  such  notice  or  knowl- 
edge will  not  be  imputed  (1)  where  it  is  such  as  it  is  the 
agent's  duty  not  to  disclose,  and  (2)  where  the  agent's 
relation  to  the  subject-matter  or  his  previous  conduct 
render  it  certain  that  he  will  not  disclose  it,  and  (3)  where 
the  person  claiming  the  benefit  of  the  notice,  or  those 
whom  he  represents,  colluded  with  the  agent  to  cheat  or 
defraud  the  principal. '  There  is  no  evidence  in  this  case 
bringing  it  within  any  of  the  exceptions  named  in  the  pro- 
viso of  the  above  rule.  This  Court,  in  Straus  v.  Spar- 
row, 148  N.  C.  309,  quotes  with  approval  this  principle, 
as  stated  in  Cox  v.  Pearce,  112  N.  Y.  637 ;  3  L.  B.  A.,  p. 
563 :  '  1.  The  failure  of  an  agent  to  communicate  to  his 
principal  information  acquired  by  him  in  the  course  and 
within  the  scope  of  his  agency  is  a  breach  of  duty  to  his 
principal ;  but  as  notice  to  the  principal  it  has  the  same 
effect  as  to  third  persons  as  though  his  duty  had  been 
faithfully  performed.'  Mfg.  Co.  v.  Eutherford,  64  S.  E. 
Rep.  444. 

1 '  If,  therefore,  Horn  was  such  an  agent  that  notice  to 
him  was  notice  to  his  principal,  the  plaintiff,  then,  under 
the  above  authorities,  it  must  follow  that  the  plaintiff  had 
notice  of  the  withdrawal  of  the  defendant  T.  J.  Renfrow 
from  the  firm,  and  its  dissolution  before  15  May — be- 
tween 6  and  15  May,  as  fixed  by  Horn.  *  *  *  Was 
Horn  such  an  agent  that  notice  to  him  was  notice  to  his 
principal?  The  evidence  offered  at  the  trial  tends  to 
show  that  Horn  was  a  traveling  salesman  of  the  plain- 
tiff, and  defendants  made  all  their  purchases,  extending 
over  several  months,  from  plaintiff  through  Horn;  that 
he  was  the  sole  representative  of  plaintiff  in  the  section 


384  AGENCY 

in  which  defendants  did  business,  and  visited  their  place 
of  business  nearly  every  thirty  days;  that  he  reported 
to  plaintiff  references  given  by  new  customers;  that  he 
reported  dissolutions  of  partnerships  with  whom  plain- 
tiff was  dealing,  and  sometimes  received  payments  for 
bills  due,  when  offered  him  by  merchants,  but  that  he  was 
not  instructed  to  collect  bills;  that  he  in  a  general  way 
inquired  about  the  condition  of  the  business  of  those 
with  whom  he  was  dealing  for  plaintiff. 

"*  *  *  Our  holding  [is]  that  the  evidence  was  suffi- 
cient to  support  a  finding  that  Horn  was  a  competent 
agent  to  receive  notice,  and  that  notice  to  him  was  notice 
to  the  plaintiff,  his  principal.  Horn  was,  by  his  course 
of  dealing  and  the  scope  and  extent  of  his  power,  the 
medium  of  negotiations  between  plaintiff  and  defendant 
partnership. ' ' 

Question  217:  State  the  points  involved  in  this  case  and  the 
Court's  decision. 

Sec.  177.    Such  Notice  Must  Be  Within  the  Scope  of 
the  Agency. 

(See  also  Case  No.  217,  supra.) 

Case  No.  218.    Congar  v.  C.  &  N.  Ewy.  Co.,  24  Wis.  157. 

Facts:  Plaintiff,  Congar,  shipped  trees  over  defend- 
ant's road,  from  Wisconsin  to  Iuka,  Iowa.  The  goods 
were  sent  to  another  town  of  the  same  name  in  the  same 
state.  The  agents  of  the  company  at  the  right  destina- 
tion had  notice  that  the  goods  were  to  arrive  there. 

Point  Involved:  Whether  the  notice  to  these  agents 
was  notice  to  the  company. 

Dixon,  C.  J.:  "The  decision  of  the  court  below,  as 
shown  by  the  written  opinion  of  the  learned  judge  found 
in  the  printed  case,  turned  upon  the  point  that,  for  the 
purpose  of  charging  the  company  with  negligence  in  ship- 
ping the  goods  over  the  wrong  road,  notice  to  any  of  its 


NOTICE  TO  AGENT  385 

agents  was  notice  to  the  company.  In  other  words,  the 
court  held,  that  the  knowledge  of  the  agents  residing  in 
the  state  of  Iowa,  and  transacting  the  business  of  the 
company  there,  of  a  place  in  that  state  named  Iuka,  and 
that  goods  destined  for  that  place  were  to  be  deposited  at 
the  nearest  station  on  the  line  of  the  company's  road, 
called  Toledo,  was  the  knowledge  of  the  company,  so  as 
to  make  the  company  responsible  for  any  injury 'result- 
ing from  the  mistake  of  its  agents  residing  and  transact- 
ing its  business  at  the  city  of  Chicago,  in  the  state  of 
Illinois,  in  forwarding  the  goods  from  the  latter  place 
by  another  railroad,  instead  of  over  the  company's  own 
road,  although  such  mistake  occurred  without  any  negli- 
gence whatever  on  the  part  of  the  agents  making  it;  but 
after  they  had  taken  reasonable  and  proper  care  to  ascer- 
tain the  route  by  which  the  goods  should  be  forwarded, 
and  had  forwarded  them  in  accordance  with  the  informa- 
tion so  obtained.  This,  we  think,  was  an  erroneous  appli- 
cation of  the  doctrine  that  notice  to  the  agent  is  notice  to 
the  principal.  Such  notice,  to  be  binding  upon  the  prin- 
cipal, must  be  notice  to  the  agent  when  acting  within 
the  scope  of  his  agency,  and  must  relate  to  the  business, 
in  which  he  is  engaged,  or  is  represented  as  being  en- 
gaged, by  authority  of  his  principal.  It  must  be  the 
knowledge  of  the  agent,  coming  to  him  while  he  is  con- 
cerned for  the  principal,  and  in  the  course  of  the  very 
transaction  which  is  the  subject  of  the  suit,  or  so  near 
before  it  that  the  agent  must  be  presumed  to  recollect  it. 
Story  on  Agency,  §  40,  and  2  Kent's  Com.  630,  and  note, 
and  cases  cited.  Notice,  therefore,  to  the  agents  in  Iowa, 
distant  some  two  or  three  hundred  miles  from  the  city  of 
Chicago,  who  had  distinct  duties  to  perform,  and  were  not 
at  all  concerned  in  the  business  of  forwarding  the  goods 
from  Chicago,  was  not  such  notice  as  will  bind  the  com- 
pany in  relation  to  that  business,  the  same  having  been 
transacted  by  other  agents,  who  had  no  such  notice.  This 
seems  very  clear,  when  we  consider  the  reason  and  ground 
upon  which  this  doctrine  of  constructive  notice  rests. 
The  principal  is  chargeable  with  the  knowledge  of  his 


386  AGENCY 

agent,  because  the  agent  is  substituted  in  his  place,  and 
represents  him  in  the  particular  transaction;  and  it 
would  seem  to  be  an  obvious  perversion  of  the  doctrine, 
and  to  lead  to  most  injurious  results,  if,  in  the  same 
transaction,  the  principal  were  likewise  to  be  charged 
with  the  knowledge  of  other  agents,  not  engaged  in  it, 
and  to  whom  he  had  delegated  no  authority  with  respect 
to  it,  but  who  were  employed  by  him  in  other  and  wholly 
different  departments  of  his  business.' ' 

Question  218:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Sec.  178.    Time  at  Which  Notice  Must  Be  Given. 

Case  No.  219.  The  Distilled  Spirits,  11  Wall.  (U.  S.) 
356. 

Facts :  Information  filed  by  the  United  States  Govern- 
ment upon  seizure  of  278  barrels  of  distilled  spirits  on 
account  of  violation  of  the  revenue  laws.  Harrington 
and  Boyden  appeared  and  claimed  ownership  to  differ- 
ent barrels.  They  claimed  to  have  purchased  in  open  mar- 
ket without  knowledge  of  the  fraud.  Instructions  given 
on  the  evidence  to  the  effect  that  if  Boyden  was  agent 
for  Harrington  in  buying  the  spirits  brought  by  Har- 
rington, and  Boyden  knew  of  the  fraud,  Harrington 
would  be  bound  by  that  knowledge. 

Point  Involved:  Whether  an  agent  who  before  his 
appointment  as  agent  has  knowledge  of  facts  affecting 
the  agency,  the  principal  is  bound  thereby. 

Mr.  Justice  Bradley  :    ■  *  *     *     * 

"The  question  how  far  a  purchaser  is  affected  with 
notice  of  prior  liens,  trusts,  or  frauds,  by  the  knowledge 
of  his  agent  who  effects  the  purchase,  is  one  that  has  been 
much  mooted  in  England  and  this  country.  That  he  is 
bound  and  affected  by  such  knowledge  or-  notice  as  his 
agent  obtains  in  negotiating  the  particular  transaction, 
is  everywhere  conceded.  But  Lord  Hardwicke  thought 
that  the  rule  could  not  be  extended  so  far  as  to  affect  the 
principal  by  knowledge  of  the  agent  acquired  previously 


NOTICE  TO  AGENT  387 

in  a  different  transaction.  Supposing  it  to  be  clear,  that 
the  agent  still  retained  the  knowledge  so  formerly  ac- 
quired, it  was  certainly  making  a  very  nice  and  thin  dis- 
tinction. Lord  Eldon  did  not  approve  of  it.  In  Mount- 
ford  v.  Scott,  he  says:  'It  may  fall  to  be  considered 
whether  one  transaction  might  not  follow  so  close  upon 
the  other  as  to  render  it  impossible  to  give  a  man  credit 
for  having  forgotten  it.  I  should  be  unwilling  to  go  so  far 
as  to  say,  that  if  an  attorney  has  notice  of  a  transaction 
in  the  morning,  he  shall  be  held  in  a  court  of  equity  to 
have  forgotten  it  in  the  evening ;  it  must  in  all  cases  de- 
pend upon  the  circumstances. '  The  distinction  taken  by 
Lord  Hardwicke  has  since  been  entirely  over-ruled  by 
the  Court  of  Exchequer  Chamber  in  the  case  of  Dresser 
v.  Norwood.  So  that  in  England  the  doctrine  now  seems 
to  be  established,  that  if  the  agent,  at  the  time  of  effecting 
a  purchase,  has  knowledge  of  any  prior  lien,  trust,  or 
fraud,  affecting  the  property,  no  matter  when  he  acquired 
such  knowledge,  his  principal  is  affected  thereby.  If  he 
acquire  the  knowledge  when  he  effects  the  purchase,  no 
question  can  arise  as  to  his  having  it  at  that  time ;  if  he 
acquired  it  previous  to  the  purchase,  the  presumption 
that  he  still  retains  it,  and  has  it  present  to  his  mind,  will 
depend  on  the  lapse  of  time  and  other  circumstances. 
Knowledge  communicated  to  the  principal  himself  he  is 
bound  to  recollect,  but  he  is  not  bound  by  knowledge  com- 
municated to  his  agent,  unless  it  is  present  to  the  agent's 
mind  at  the  time  of  effecting  the  purchase.  Clear  and 
satisfactory  proof  that  it  was  so  present  seems  to  be  the 
only  restriction  required  by  the  English  rule  as  now  un- 
derstood. With  the  qualification  that  the  agent  is  at  lib- 
erty to  communicate  his  knowledge  to  his  principal,  it 
appears  to  us  to  be  a  sound  view  of  the  subject.  The 
general  rule  that  a  principal  is  bound  by  the  knowledge 
of  his  agent  is  based  on  the  principle  of  law,  that  it  is  the 
agent's  duty  to  communicate  to  his  principal  the  knowl- 
edge which  he  has  respecting  the  subject-matter  of  nego- 
tiation, and  the  presumption  that  he  will  pe'rform  that 
duty.    When  it  is  not  the  agent's  duty  to  communicate 


388  AGENCY 

such  knowledge,  when  it  would  be  unlawful  for  him  to  do 
so,  for  example,  when  it  has  been  acquired  confidentially 
as  attorney  for  a  former  client  in  a  prior  transaction,  the 
reason  of  the  rule  ceases,  and  in  such  a  case  an  agent 
would  not  be  expected  to  do  that  which  would  involve  the 
betrayal  of  professional  confidence,  and  his  principal 
ought  not  to  be  bound  by  his  agent's  secret  and  confiden- 
tial information.  This  often  happened  in  the  case  of 
large  estates  in  England,  where  men  of  great  professional 
eminence  were  frequently  consulted.  They  thus  became 
possessed,  in  a  confidential  manner,  of  secret  trusts  or 
other  defects  of  title,  which  they  could  not  honorably,  if 
they  could  legally,  communicate  to  subsequent  clients. 
This  difficulty  presented  itself  to  Lord  Hardwicke's  mind, 
and  undoubtedly  lay  at  the  bottom  of  the  distinction  which 
he  established.  Had  he  confined  it  to  such  cases,  it  would 
have  been  entirely  unexceptionable. 

"The  general  tendency  of  decisions  in  this  country  has 
been  to  adopt  the  distinction  of  Lord  Hardwicke,  but  it 
has  several  times  been  held,  in  consonance  with  Lord 
Eldon's  suggestion,  that  if  the  agent  acquired  his  in- 
formation so  recently  as  to  make  it  incredible  that  he 
should  have  forgotten  it,  his  principal  will  be  bound. 
This  is  really  an  abandonment  of  the  principle  on  which 
the  distinction  is  founded.  The  case  of  Hart  v.  Farmers ' 
and  Mechanics'  Bank  adopts  the  rule  established  by  the 
case  of  Dresser  v.  Norwood.  Other  cases,  as  that  of  Bank 
of  United  States  v.  Davis,  New  York  Central  Insurance 
Co.  v.  National  Protection  Co.,  adhere  to  the  more  rigid 
view.     *     *     *" 

Question  219:  Is  a  principal  bound  by  the  agent's  knowledge 
acquired  prior  to  the  agency!  State  the  rule  as  given  in  the 
above  case. 

Sec.  179.    Not  Notice  Where  Agent  Not  at  Liberty  to 

Disclose. 

(Note:  See  remarks  and  illustration  given  in  The  Distilled 
Spirits,  supra.) 


NOTICE  TO  AGENT  389 

Sec.  180.    Not  Notice  Where  Agent  Is  Acting  Adversely 

to  Principal. 

Case  No.  220.  Craft  v.  So.  Boston  E.  R.  Co.,  150  Mass. 
200. 

Field,  J.:  '"*     *     * 

' '  The  general  rule  is  that  notice  to  an  agent  while  act- 
ing for  his  principal  of  facts  affecting  the  character  of 
the  transaction  is  constructive  notice  to  the  principal. 
*  *  *.  There  is  an  exception  to  this  rule  when  the 
agent  is  engaged  in  committing  an  independent  fraudu- 
lent act  on  his  own  account,  and  the  facts  to  be  imputed 
relate  to  the  fraudulent  act.     *     *     *." 

Question  220:    State  the  exception  noted  in  this  case. 


CHAPTER    TWENTY-NINE 

THE  ADMISSIONS  AND  DECLARATIONS  OF  THE 
AGENT  AS  BINDING  UPON  THE  PRINCIPAL 

§  181.  Agent's    declarations    of    his      §  182.  Admissions  of  agent  as  part 
own    agency    or    authority  of  his  act  binding  on  prin- 

not  binding  on  principal.  cipal. 

Sec.  181.    Agent's  Declarations  of  His  Own  Agency  or 
Authority  Not  Binding  on  Principal. 

Case  No.  221.    Lew  v.  Mayer,  52  Kans.  419. 

Facts:  Jacob  Lew  &  Sons  sue  the  members  of  the 
partnership  of  Mayer  Sells  &  Co.  for  goods  sold  and 
delivered.  Defense,  that  Keyes,  an  agent  of  the  plain- 
tiffs, had  made  a  settlement  by  which  he  had  agreed  to 
look  to  one  of  the  partners  alone  and  to  release  the  others. 
This  authority  of  the  agent  to  make  such  a  settlement 
is  denied.  The  court  instructed  the  jury  to  the  effect 
that  if  Keyes  so  conducted  and  declared  himself  as  to 
lead  the  defendants  to  believe  that  he  was  authorized 
to  make  the  arrangement  and  that  they  acted  on  that 
belief,  the  plaintiffs  would  be  bound.  Verdict  and  judg- 
ment for  defendants.  Plaintiffs  appeal,  alleging  that 
this  instruction  was  error. 

Point  Involved:  Whether  a  principal  is  bound  by  the 
declarations  of  an  agent  as  to  his  authority  or  the  extent 
thereof. 

Johnson,  J. :  * '  *  #  *  As  the  authority  of  Keyes 
was  a  disputed  question  of  fact,  the  importance  of  the 
instruction  was  easily  seen.     *     *     *.    This  instruction 

390 


ADMISSIONS  OF  AGENT  391 

was  clearly  erroneous.  *  *  *  it  is  clear  that  the 
agency  or  authority  cannot  be  established  by  the  declara- 
tions of  the  alleged  agent,  and  testimony  of  his  act  or  con- 
duct is  of  no  greater  value  for  that  purpose.     *     *     *" 

Question  221 :  What  is  the  reason  for  the  rule  that  the  declara- 
tions or  admissions  of  an  agent  as  to  his  authority  are  not  bind- 
ing on  the  principal? 

Sec.  182.    Admissions  of  Agent  as  Part  of  His  Act  Bind- 
ing on  Principal. 

« 

Case  No.  222.    White  v.  Miller,  71  New  York  118. 

Facts:  Plaintiff  sued  defendant  for  breach  of  war- 
ranty as  to  the  character  of  cabbage  seed.  To  prove 
the  defective  character  of  the  seed,  plaintiff  offered  in 
evidence  a  conversation  alleged  to  have  occurred  be- 
tween plaintiff  and  the  agent  of  defendant,  with  whom 
nearly  eight  months  before,  the  sale  had  been  contracted. 
This  conversation  was  objected  to  as  not  binding  on  the 
defendant. 

Point  Involved:  Under  what  circumstances  the  ad- 
missions of  an  agent  are  binding  upon  his  principal. 

Andrews,  J.:  "*  *  *  The  general  rule  is,  that 
what  one  person  says  out  of  court  is  not  admissible  to 
charge  or  bind  another.  The  exception  is  in  cases  of 
agency,  and  in  cases  of  agency  the  declarations  of  the 
agent  are  not  competent  to  charge  the  principal,  upon 
proof  merely  that  the  relation  of  principal  and  agent 
existed  when  the  declarations  were  made.  It  must  further 
appear  that  the  agent,  at  the  time  the  declarations  were 
made,  was  engaged  in  executing  the  authority  conferred 
upon  him,  and  that  the  declarations  related  to,  and  were 
connected  with  the  business  then  depending,  so  that  they 
constituted  a  part  of  the  res  gestae.     *     *     *  " 

Question  222:    State  the  rule  of  the  above  case. 


CHAPTER    THIRTY 

RESPONSIBILITY    OF    PRINCIPAL    OR    MASTER 
FOR  TORTS  OF  AGENT  OR  SERVANT 

§  183.  Principal  or  master  liable  in  §  185.  Principal     or    master     liable 

cases    of    prior    autboriza-  when  tort  committed  with- 

tion  in  fact.              *  in    scope    of    authority    or 

§  184.  Principal  or  master  liable  in  employment, 
cases  of  ratification. 

Sec.  183.    Principal  or  Master  Liable  in  Cases  of  Prior 
Authorization. 

(Note:  If  one  authorizes  or  directs  the  commission  of  a  tort 
by  another  he  is  liable  as  though  the  tort  were  by  him  in  person. ) 

Sec.  184.    Principal  or  Master  Liable  in  Cases  of 
Ratification. 

(See  Case  No.  173,  supra.) 

Sec.  185.    Principal  or  Master  Liable  When  Tort  Com- 
mitted Within  Scope  of  Authority  or  Employment. 

Case  No.  223.    Lloyd  v.  Grace  et  al.,  [1912]  A.  C.  716. 

Facts:    The  facts  are  given  in  the  opinion. 

Point  Involved:  Whether  a  principal  is  liable  for  the 
fraud  of  his  agent,  committed  within  the  general  scope 
of  the  agent's  duties,  the  principal  taking  no  benefit  from 
said  fraud,  and  in  no  way  consenting  to  or  ratifying  the 
same. 

(Opinions  of  Earl  of  Halsbury,  Lord  MacNaghten, 
Lord  Atkinson  and  Lord  Shaw,  omitted.) 

392 


TORTS  OF  AGENT  393 

"Earl  Loreburn:  My  Lords,  the  facts  of  this  case, 
except  in  immaterial  points,  are  quite  clear  and  undis- 
puted. 

"The  appellant,  Mrs.  Lloyd,  had  bought  some  prop- 
erty, and  thus  had  come  to  know  of  the  defendant,  a 
solicitor.  She  had  doubts  about  having  got  her  money's 
worth,  and  went  to  the  defendant's  office  to  inquire. 
When  there  she  saw  one  Sandles,  the  defendant's  man- 
aging clerk,  and  was  induced  by  him  to  give  him  instruc- 
tions to  sell  or  realize  this  property,  and  for  that  pur- 
pose to  give  him  the  deeds  and  to  sign  two  documents 
which  she  neither  read  nor  knew  the  tenor  of,  but  which 
put  into  Sandles'  possession  her  interest  therein.  She 
gave  him  the  deeds  as  the  defendant's  representative. 
Having  got  them  and  the  signed  documents,  he  dishon- 
estly disposed  of  this  lady's  property  and  pocketed  the 
proceeds.  That  is  the  whole  story  as  it  is  now  either 
found  or  admitted  because  it  was  incontestable. 

"It  is  clear  to  my  mind,  upon  these  simple  facts,  that 
the  jury  ought  to  have  been  directed,  if  they  believed 
them,  to  find  for  the  plaintiff.  The  managing  clerk  was 
authorized  to  receive  deeds  and  carry  through  sales  and 
conveyances,  and  to  give  notices  on  the  defendant's  be- 
half. He  was  instructed  by  the  plaintiff,  as  the  repre- 
sentative of  the  defendant's  firm, — and  she  so  treated 
him  throughout — to  realize  her  property.  He  took  ad- 
vantage of  the  opportunity  so  afforded  him  as  the  de- 
fendant's representative  to  get  her  to  sign  away  all  that 
she  possessed  and  put  the  proceeds  into  his  own  pocket. 
In  my  opinion  there  is  an  end  of  the  case.  It  was  a 
breach  by  the  defendant's  agent  of  a  contract  made  by 
him  as  defendant's  agent  to  apply  diligence  and  honesty 
in  carrying  through  a  business  within  his  delegated 
powers  and  entrusted  to  him  in  that  capacity.  It  was 
also  a  tortious  act  committed  by  the  clerk  in  conducting 
business  which  he  had  a  right  to  conduct  honestly,  and 
was  instructed  to  conduct,  on  behalf  of  his  principal. 

"At  the  hearing  the  learned  judge,  no  doubt  with  a 
view  to  avoid  the  risk  of  a  new  trial  in  so  small  a  case, 


394  AGENCY 

appears  to  have  been  prevailed  upon  to  put  no  less  than 
six  questions,  with  subdivisions  making  in  all  ten  ques- 
tions, to  the  jury.  Some  of  them  were  quite  immaterial. 
Others  were  framed  in  order  to  raise  a  point  of  law  sup- 
posed to  be  affirmed  by  Willes  J.  in  the  case  of  Barwiek 
v.  English  Joint  Stock  Bank  in  a  passage  which  ad- 
mitted of  more  than  one  meaning.  The  meaning  of  the 
answers  depends  upon  how  the  jury  understood  the  ques- 
tions, and  we  were  not  told  how  they  were  explained  to 
the  jury.  That  Sandles  committed  this  fraud  in  order  to 
steal  the  money  for  himself  is  obvious,  and  any  jury  must 
so  find.  That  he  did  it  in  the  sense  in  which  Willes  J. 
means  the  word  ' benefit'  is  not  true  upon  the  admitted 
facts.  Willes  J.  cannot  have  meant  that  the  principal 
is  absolved  whenever  his  agent  intended  to  appropriate 
for  himself  the  proceeds  of  his  fraud.  Nearly  every 
rogue  intends  to  do  that. 

"I  have  only  to  say,  as  to  the  authority  of  Barwiek 
v.  English  Joint  Stock  Bank,  that  I  entirely  agree  in  the 
opinion  about  to  be  delivered  by  Lord  MacNaghten.  If 
the  agent  commits  the  fraud  purporting  to  act  in  the 
course  of  business  such  as  he  was  authorized,  or  held  out 
as  authorized,  to  transact  on  account  of  his  principal, 
then  the  latter  may  be  held  liable  for  it.  And  if  the  whole 
judgment  of  Willes  J.  be  looked  at  instead  of  one  sentence 
alone,  he  does  not  say  otherwise." 

Question  223:  What  were  the  facts  in  the  above  case,  and 
what  did  the  Court  hold? 

Case  No.  224.  Daniel  v.  Atlantic  Coast  Line  R.  R.  Co., 
136  N.  C.  517. 

Facts:  Daniel  sues  the  R.  R.  Co.  for  damages  caused 
by  his  wrongful  arrest  and  imprisonment.  The  R.  R. 
Co.  had  a  station  at  Greenville,  N.  C.  Daniel  went  to 
said  station  to  take  passage  on  one  of  defendant's  trains, 
and  finding  the  passenger  depot  closed,  went  to  the  freight 
depot  and  was  invited  into  the  office  by  Atkinson,  the 
agent  of  the  company.     Atkinson  was  counting  money 


TORTS  OF  AGENT  395 

and  putting  it  into  a  package.  Atkinson  then  put  the 
money  in  a  drawer  and  locked  it,  and  went  out  to  sup- 
per. Daniel  in  a  few  minutes  went  out  after  him,  leaving 
several  people  who  were  waiting  there.  When  the  train 
arrived,  plaintiff  boarded  it  and  went  to  Kinston,  where 
he  was  to  change  cars,  and  missing  connections,  went 
to  a  hotel  at  Kinston.  The  agent  at  Greenville  then 
called  up  the  agent,  Meacham,  at  Kinston,  whereupon 
the  agent  at  Kinston  went  with  a  policeman  to  the 
hotel,  and  demanded  entrance  to  Daniel's  room.  They 
made  a  search  for  the  money,  and  later  arrested  Daniel, 
taking  him  to  the  guard  house,  where  he  was  later  re- 
leased. On  the  following  Sunday  he  was  re-arrested  on 
direction  of  the  agent  at  Greenville.  On  the  trial  Daniel 
was  discharged.  Atkinson's  duties  were  to  collect 
money  for  freight,  sell  tickets  to  passengers,  take  care 
of  the  money  received,  and  forward  same  to  company's 
treasurer. 

The  E.  R.  Co.  claims  that  it  is  not  responsible  for  the 
arrest. 

(Editor's  note:  It  may  be  explained  parenthetically 
that  one  who  causes  the  arrest  of  another  is  liable  in 
damages  therefor  when  he  acts  without  probable  cause. 
We  may  assume  that  there  was  no  probable  cause  in  this 
case  and  that  the  company  would  be  liable  if  the  act  was 
within  the  scope  of  the  agent's  employment.) 

Point  Involved:  Under  what  circumstances,  if  any,  a 
principal  is  liable  for  the  tort  of  malicious  prosecution  or 
false  arrest  by  his  agent,  where  he  has  not  expressly 
authorized  such  prosecution  or  arrest,  and  where  he  has 
not  expressly  made  it  the  agent's  duty  to  prosecute  or 
arrest. 

Walker,  J.:  "The  foregoing  statement  of  the  testi- 
mony [here  given  in  brief  resume]  is  sufficient  to  pre- 
sent the  point  upon  which  the  case  turns,  namely,  the 
authority  of  the  agent  of  the  defendant  to  cause  the 
arrest  to  be  made.  We  are  not  concerned  so  much  with 
the  manner  in  which  the  arrest  was  made  as  we  are  with 


396  AGENCY 

the  question  whether  the  defendant,  who  was  the  prin- 
cipal of  Atkinson  and  Meacham,  is  to  be  charged  with 
liability  for  their  tortious  acts.  That  their  conduct  to- 
ward the  plaintiff  was  inexcusable,  if  not  criminal,  and 
justly  provokes  the  resentment  of  every  good  and  law 
abiding  citizen  against  them,  may  be  freely  admitted. 

*  *  *  The  excesses  of  Atkinson  and  Meacham  do  not 
establish  the  defendant's  liability.  That  can  be  shown 
only  by  proof  that  the  defendant  authorized  the  acts  to 
be  done,  or  that,  after  they  were  done,  it  ratified  them. 

•  #  #  The  plaintiff's  sole  contention  is  that  what  At- 
kinson did  at  Greenville  and  Meacham  at  Kinston  was 
within  the  line  of  their  duty  and  the  scope  of  their  em- 
ployment, and  therefore  they  had  implied  authority  from 
defendant  to  do  what  they  did,  upon  the  theory,  we  sup- 
pose, that  every  authority  carries  with  it  or  includes 
in  it,  as  an  incident,  all  the  powers  which  were  necessary, 
proper,  or  usual  as  means  to  effectuate  the  purposes  for 
which  it  was  conferred,  and  that  consequently  when  an 
agency  is  created  for  a  specified  purpose  or  in  order  to 
transact  particular  business,  the  agent's  authority  by  im- 
plication embraces  the  appropriate  means  and  power  to 
accomplish  the  desired  end.  *  *  *  This  is  the  gen- 
eral rule  and  the  doctrine  of  respondeat  superior  is  a 
familiar  one.  But  in  our  opinion  it  has  no  application 
to  the  facts  of  this  case.  If  we  should  hold  it  is  so  broad 
in  its  scope  as  to  include  a  case  like  this,  it  would  lead 
to  most  dangerous  consequences. 

"For  us  to  say  that  an  agent  can  by  his  acts  subject 
his  principal  to  liability  in  damages  to  any  one  injured 
by  his  said  acts  done  when  he  was  not  about  his  master's 
business  and  had  no  express  or  implied  authority  to  do 
them,  but  was  merely  seeking  to  avenge  a  supposed 
wrong  already  committed  or  to  vindicate  public  justice, 
would  be  carrying  the  doctrine  of  respondeat  superior 
far  beyond  its  acknowledged  limits.  A  servant  entrusted 
with  his  master's  goods  may  do  what  is  necessary  to 
preserve  and  protect  them,  because  his  authority  to  do 
so  is  clearly  implied  by  the  nature  of  the  service,  but 


TORTS  OF  AGENT  397 

when  the  property  has  been  taken  from  his  custody  or 
stolen  and  the  crime  has  already  been  committed,  it 
cannot  be  said  that  a  criminal  prosecution  is  necessary 
for  its  preservation  or  protection.  This  may  lead  to  the 
punishment  of  the  thief  or  the  trespasser,  but  it  certain- 
ly will  not  restore  the  property  or  tend  in  any  degree 
to  preserve  or  protect  it.  It  is  an  act  clearly  without 
the  scope  of  the  agency  and  cannot  possibly  be  brought 
within  the  limits  of  the  implied  authority  of  the  agent." 

Question  224:  What  were  the  facts,  the  question  presented 
and  the  Court's  decision?     (Compare  with  the  following  case.) 

Case  No.  225.    Staples  v.  Schmidt,  18  R.  I.  224. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  The  responsibility  of  a  principal  for  a 
wrongful  arrest  by  his  salesman  and  custodian  of  a  cus- 
tomer suspected  of  "shoplifting." 

Douglas,  J.:  "The  jury  has  substantially  found  in 
this  case  that  the  defendant's  salesman  erroneously  sus- 
pecting the  plaintiff  of  having  stolen  a  package  of  spoons 
from  the  store  which  was  in  his  charge,  detained  her,  sent 
for  a  police  officer  and  caused  her  to  be  sent  to  the  police 

station  and  there  searched.     *     *     * 
urn      *      # 

"•  *  *  the  defendants  say  that  the  acts  here  com- 
plained of  were  not  within  the  scope  of  their  ♦agent's  em- 
ployment. It  is  obvious  that  in  most  cases  the  question 
is  one  of  fact.  What  are  the  limitations  of  an  agent's 
or  a  servant's  authority  depends  generally  upon  the 
things  he  is  to  do,  the  object  he  is  set  to  accomplish,  the 
degree  of  discretion  which  the  position  where  he  is  placed 
and  the  exigencies  of  the  occasion  reasonably  call  for. 
These  are  matters  of  common  knowledge  when  they  per- 
tain to  the  ordinary  occupations  of  men,  matters  of  fact, 
as  well  known  to  the  jury  as  to  the  court,  or  inferences 
of  fact  from  well  known  or  proven  facts  which  it  is  as 
much  the  province  of  the  jury  to  draw  as  it  is  the  province 


398  AGENCY 

of  the  court  to  carry  out  a  principle  of  law  to  particular 
deductions. 

a*      #      # 

"Two  principles  seem  to  be  recognized  by  the  English 
cases  cited. 

"First.  That  when  a  servant  not  specially  appointed 
to  protect  property  arrests  a  person  whom  he  supposes 
to  have  stolen  his  master's  goods,  the  servant  must  be 
presumed  to  have  acted  in  pursuance  of  his  duty  as  a 
good  citizen  and  not  in  the  scope  of  his  employment  as  a 
servant.  This  was  strenuously  urged  by  counsel  in  Ed- 
wards v.  London  &  North  Western  Eailway  Co.,  L.  R.  5 
C.  P.  445,  and  was  adopted  by  the  court  as  the  rule  for 
that  case.  We  doubt  its  cogency  as  a  rule  of  universal 
application.  The  arrest  of  a  thief  is  not  an  ordinary 
necessity  of  commercial  business.  An  attempt  to  steal 
is  an  extraordinary  event  which  puts  the  guardian  of  the 
property  to  an  instantaneous  election  of  means  to  frus- 
trate it.  A  clerk  or  salesman  in  such  a  case  may  ex 
necessitate  be  invested  with  duties  and  powers  which  are 
more  germane  to  the  scope  of  employment  of  an  officer. 
The  opinions  of  the  judges,  however,  are  instructive  in 
this  connection  as  showing  assent  to  the  converse  of  the 

proposition,  which  is  nearer  the  case  at  bar. 

a*     #     # 

"It  is  quite  true  that  the  master  would  have  had  no 
right  to  arrest  and  search  an  innocent  person ;  but  it  is 
equally  true  that  he  would  have  had  the  right  to  detain 
a  thief  and  to  recapture  his  property  from  him.  The 
case,  therefore,  was  one  where  the  act,  aside  from  any 
excessive  force,  might  be  lawful  or  unlawful  according 
to  whether  the  supposed  circumstances  were  real  or  un- 
real. The  servant  was  left  in  a  situation  where  he  was 
obliged  to  determine  the  fact  and  where  his  duty  to  his 
master  depended  upon  his  decision.  The  decision  was 
his,  as  the  substitute  of  the  master,  and  the  act  was  one 
intended  by  him  to  be  for  his  master's  benefit  and  which 
his  duty  required  if  the  facts  were  as  supposed.  Hence, 
as  to  third  persons,  it  was  the  master's  act.    The  cri- 


TORTS  OF  AGENT  399 

terion  of  the  master's  liability  can  never  be  whether  the 
act  would  have  been  lawful  for  the  master  to  have  done 
in  the  circumstances  as  they  actually  existed. 

"It  remains  to  apply  these  principles  to  the  case  at 
bar.  The  servant  in  this  case  was  left  with  an  assistant 
in  charge  of  his  master 's  store.  His  ordinary  duties  un- 
doubtedly were  to  show  goods  and  to  sell  them  to  cus- 
tomers. It  was,  however,  equally  his  duty  to  protect  his 
master's  property  from  pilfering.  The  acts  complained 
of  were  evidently  done  with  that  intention.  The  arrest 
was  for  the  puprose  of  searching  for  and  recovering  the 
master's  property,  not  with  the  object  of  punishing  crime 
against  the  public.  The  establishment  was  not  a  railroad 
station  where  the  multiplicity  of  employees  confines  each 
one  to  a  narrow  round  of  duties,  where  special  officers 
are  stationed  to  preserve  order  and  detain  criminals, 
nor  a  large  dry  goods  emporium  where  detectives  and 
watchmen  are  employed  to  guard  against  thieves.  The 
servant  here  was  salesman  and  custodian  in  one.  What- 
ever the  master  might  do  in  the  protection  of  his  prop- 
erty he  expected  his  servant  to  do  in  his  absence.  If  the 
servant  had  seen  the  plaintiff  take  up  and  secrete  the 
package  of  spoons  in  question  and  had  allowed  her  to 
walk  away  with  them  unmolested,  could  anyone  say  that 
he  had  not  been  derelict  in  his  duty  to  his  master?  If 
in  the  performance  of  this  duty  he  mistook  the  occasion 
for  it,  or  exceeded  his  powers  or  employed  an  improper 
degree  of  compulsion,  the  mistake  and  the  excess  must 
be  answered  'for  by  the  master." 

Question  225 :  (1.)  State  the  facts  in  this  case,  the  question 
presented  and  the  Court's  decision. 

(2.)  The  M.  R.  Co.  employed  A,  as  a  ticket  agent.  M  pur- 
chased a  ticket  and  paid  therefor  a  coin,  which  the  agent  imme- 
diately after  taking,  pronounced  as  counterfeit.  On  her  refusal  to 
accept  it  back,  he  denounced  her  as  a  counterfeiter  and  detained 
her  for  arrest.  Was  the  company  liable?  (Palmeri  v.  M.  R.  Co., 
133  N.  Y.  261.) 

(3.)  A  conductor  for  the  M.  R.  Co.  caused  the  arrest  of  a 
passenger  for  disturbing  the  peace.     The  arrest  was  wrongful. 


400  AGENCY 

Is  the  company  liable?  (Ruth  v.  St.  L.  T.  Co.,  98  Mo.  Ap.  1.) 
(4.)  A  left  home  with  the  intention  of  going  to  R's  store  to 
trade.  Before  she  entered  the  store  and  while  she  was  standing 
looking  into  a  show  window,  a  detective  employed  by  the  com- 
pany caused  her  arrest,  accusing  her  of  shoplifting.  Is  R  liable  ? 
(Vrchotka  v.  Rothschild,  100  111.  Ap.  268.) 

Case  No.  226.     Joel  v.  Morrison,  6  C.  &  P.  501. 

Facts:  Plaintiff  sues  to  recover  damages,  alleging 
that  as  he  was  crossing  on  foot  a  public  highway,  a  cart 
and  horse,  under  the  care  and  direction  of  a  servant 
of  the  defendant,  was  driven  negligently  against  him  and 
he  was  thrown  down  and  injured.  The  evidence  was 
conflicting  whether  the  servant  was  about  his  master's 
business  or  on  a  journey  of  his  own.  The  jury  found 
for  the  plaintiff. 

Point  Involved:  Whether  a  master  is  liable  when  the 
servant  in  driving  a  vehicle  for  the  master,  deviates  from 
the  journey  for  his  own  purposes  or  goes  on  a  journey  of 
his  own. 

Pakke,  B. :  In  summing  up  to  the  jury  said : 
"This  is  an  action  to  recover  damages  for  an  injury 
sustained  by  the  plaintiff,  in  consequence  of  the  negli- 
gence of  the  defendant's  servant.  There  is  no  doubt 
that  the  plaintiff  has  suffered  injury,  and  there  is  no 
doubt  that  the  driver  of  the  cart  was  guilty  of  negligence, 
and  there  is  no  doubt  also  that  the  master,  if  that  person 
was  driving  the  cart  on  his  master's  business,  is  respon- 
sible. If  the  servants,  being  on  their  master's  business, 
took  a  detour  to  call  upon  a  friend,  the  master  will  be 
responsible.  If  you  think  the  servants  lent  the  cart  to 
a  person  who  was  driving  without  the  defendant 's  knowl- 
edge, he  will  not  be  responsible.  Or,  if  you  think  that 
the  young  man  who  was  driving  took  the  cart  surrepti- 
tiously, and  was  not  at  the  time  employed  on  his  mas- 
ter's business,  the  defendant  will  not  be  liable.  The  mas- 
ter is  only  liable  where  the  servant  is  acting  in  the  course 
of  his  employment.     If  he  was  going  out  of  his  way, 


TORTS  OF  AGENT  401 

against  his  master's  business,  he  will  make  his  master 
liable ;  but  if  he  was  going  on  a  frolic  of  his  own,  with- 
out being  at  all  on  his  master's  business,  the  master  will 
not  be  liable.  As  to  the  damages,  the  master  is  not  guilty 
of  any  offense,  he  is  only  responsible  in  law,  therefore 
the  amount  should  be  reasonable." 

Question  226:  (1.)  Where  the  servant  deviates  from  his 
master's  business,  and  commits  a  tort  during  such  deviation  is 
the  master  liable?    What  is  the  test? 

(2.)  A  is  employed  as  P's  locomotive  engineer.  While  the 
engine  is  standing  at  a  depot  awaiting  time  for  departure,  A 
blows  the  whistle  as  a  practical  joke  to  scare  M's  horse  which  is 
standing  near  and  on  which  M  is  riding.  The  horse  runs  away 
and  injures  M.    Is  P  liable? 

(3.)  A  employed  by  P  as  a  bricklayer,  observes  S,  against 
whom  he  holds  enmity,  approaching.  He  hurls  a  brick  at  S  and 
injures  him.    Is  P  liable  ? 

Case  No.  227.  Cunningham  v.  Castle,  111  N.  Y.  Suppl. 
1056. 

Facts :  Defendant  owned  an  automobile  and  employed 
one  Boes  as  his  chauffeur.  The  chauffeur  asked  to  bor- 
row the  machine  to  take  a  trip  of  his  own  and  permission 
being  granted  he  went  on  the  trip,  and  in  the  course 
thereof  he  collided  with  and  injured  plaintiff.  Plaintiff 
sues  defendant. 

Clarke,  J.:    "•     *     * 

• '  From  the  foregoing  cases  we  may  deduce  the  follow- 
ing rules  as  thoroughly  established :  First,  that  a  master 
is  responsible  for  the  negligence  of  his  servant  when 
engaged  about  the  master's  business  and  within  the 
scope  of  his  employment;  second,  that  a  master  is  not 
responsible  for  the  negligence  of  his  general  servant,  if 
at  the  time  of  the  negligence  he  has  become  ad  hoc  the 
servant  of  another,  and  engaged  in  the  business  of  that 
other,  and  under  his  direction  and  control;  third,  that 
the  master  is  not  responsible  for  the  negligence  of  his 
general  servant,  if  the  negligent  act  was  committed  by 


402  AGENCY 

the  servant  not  in  the  prosecution  of  the  master's  busi- 
ness, but  in  the  course  of  some  private  enterprise  of  his 
own ;  fourth,  that  even  if,  in  the  prosecution  of  that  pri- 
vate enterprise,  the  servant  uses  the  instrumentalities 
of  the  master  for  his  own  purposes,  without  the  knowl- 
edge and  consent  of  the  master,  the  master  is  not  re- 
sponsible. 

"For  the  purpose  of  this  discussion  it  must  be  con- 
ceded that  the  chauffeur  was  not  engaged  in  the  master 's 
business,  but  was  on  a  private  pleasure  trip  of  his  own, 
and  was  using  therein  the  master's  automobile  with  the 
master's  knowledge  and  consent.  It  is  urged  that  the 
automobile  was  a  dangerous  instrumentality,  and  that, 
having  been  intrusted  to  the  chauffeur,  the  liability  of 
the  master  still  attached  because  of  its  dangerous  char- 
acter. The  automobile  is  not  necessarily  a  dangerous 
device.  It  is  an  ordinary  vehicle  of  pleasure  and  busi- 
ness. It  is  no  more  dangerous  per  se  than  a  team  of 
horses  and  a  carriage,  or  a  gun,  or  a  sailboat,  or  a  motor 
launch.  There  is  no  evidence  that  the  chauffeur  was  not 
competent  and  qualified  to  run  the  machine.  In  fact, 
he  was  employed  by  the  defendant  for  that  very  pur- 
pose. If  a  gamekeeper  had  borrowed  his  master's  gun, 
and  had  gone  from  the  estate  on  a  hunting  expedition 
of  his  own,  and  had  negligently  shot  a  man,  would  the 
master  be  responsible  because  he  was  using  that  instru- 
mentality, which  might  be  dangerous  if  carelessly  used — 
the  gun? 

"I  do  not  think  that  the  question  of  the  ignorance  or 
consent  of  the  master  has  any  bearing  whatever  upon  his 
liability.  The  fact  that  the  servant  has  used  the  horses 
or  the  automobile  without  his  consent  has  probative  force 
upon  the  proposition  as  to  whether  or  not  the  servant 
was  engaged  in  the  master's  business  and  was  acting 
within  the  scope  of  his  employment.  The  question  is 
whether  he  was  or  not.  If,  without  the  knowledge  of  his 
master,  he  took  the  car  from  the  garage  to  a  machine 
shop  to  have  it  fixed,  and  an  accident  occurred,  the  fact 
of  the  want  of  knowledge  on  the  master's  part  would 


TORTS  OF  AGENT  403 

not  affect  the  liability,  because  the  act  would  be  within 
the  scope  of  the  servant's  employment  and  in  the  prose- 
cution of  the  master's  business.  If  the  chauffeur  were 
granted  a  two  week's  vacation,  and  the  master  said  to 
him:  'I  am  going  off  on  a  trip,  and  will  not  need  the 
machine.  You  may  take  it  and  use  it  for  your  own 
pleasure  while  I  am  gone,'  I  cannot  think  that  he  would 
be  responsible  for  any  negligence  of  the  chauffeur  dur- 
ing that  period. 
<<  #     #     * 

' '  I  reach  the  conclusion  that  upon  principle  and  author- 
ity the  charge  was  fatally  erroneous  in  the  matter  ex- 
cepted to,  and  that  a  question  of  fact  was  presented  upon 
this  evidence,  which  was  whether  the  chauffeur  at  the 
time  of  the  injuries  complained  of  was  acting  within  the 
scope  of  his  employment.  The  testimony  that  he  was 
not  so  engaged,  coming  from  the  defendant  and  his 
chauffeur,  must  be  considered  as  given  by  interested 
witnesses,  and  the  jury  might  have  refused  to  be  bound 
by  it ;  but  nevertheless  it  should  have  been  submitted  for 
their  consideration.  It  may  be  that  it  would  be  wise 
and  in  the  public  interests  that  responsibility  for  an  ac- 
cident caused  by  an  automobile  should  be  affixed  to  the 
owner  thereof,  irrespective  of  the  person  driving  it,  but 
the  law  does  not  so  provide. 

Question  227:  (1.)  State  the  facts  in  this  case,  the  question 
presented  and  the  Court's  decision. 

(2.)     What  rules  as  to  liability  did  the  Court  lay  down? 

(Note :  Three  justices  dissented  in  the  Cunningham  case,  hold- 
ing that  as  the  chauffeur  had  to  take  the  car  to  the  garage,  the 
trip  by  him  was  a  mere  deviation  from  the  route,  and  that  he 
was  still  during  that  trip  in  the  owner's  general  employ,  respon- 
sible for  the  safety  of  the  machine  and  in  seeing  it  properly 
housed,  and  they  distinguished  between  this  case  and  the  case 
of  the  chauffeur  taking  the  machine  out  for  his  own  purposes 
without  his  owner's  permission.) 


CHAPTER    THIRTY-ONE 

RIGHTS  OF  THE  PRINCIPAL  AGAINST  THIRD 

PERSONS 

A.  Rights  of  a  disclosed  principal.  B.  Rights  of  an  undisclosed  princi- 

pal. 

A.    Rights  of  a  Disclosed  Principal. 
Sec.  186.    In  General. 

(Note :  If  a  third  person  contracts  with  the  principal  through 
the  agent,  the  rights  and  obligations  that  ensue  are  precisely  the 
same  as  though  the  contract  had  been  with  the  principal  in  per- 
son. "We  need  not  include  any  cases  to  elucidate  this  apparent 
truth.  We  have  considered  elsewhere  the  doctrine  of  ratification, 
by  which  we  noted  that  a  third  person  may  be  liable  to  the 
principal  and  the  principal  to  the  third  person  though  the  agent 
had  no  authority  at  the  time,  if  he  contracted  in  the  name  of  the 
principal.  We  also  consider  elsewhere  that  a  principal  is  not 
liable  on  certain  contracts  made  by  an  agent  in  his  own  name. 
It  follows  that  the  principal  cannot  in  that  case  hold  the  third 
person.  The  liability  of  the  third  person  to  an  undisclosed 
principal  remains  to  be  considered.) 

B.    The  Rights  of  an  Undisclosed  Principal. 

§  187.  The  general  rule.  §  190.  Exception  hased  on  the  state 

§  188.  Exception  in  case  of  negoti-  of    accounts    between    the 

able  paper.  third  person  and  the  agent. 

§  189.  Exception   in   case   of   sealed       §  191.  Exception  in  case  of  contract 

instruments.  of    personal    nature    with 

agent. 

404 


RIGHTS  OF  UNDISCLOSED  PRINCIPAL  405 

Sec.  187.    The  General  Rule. 

Case  No.  228.     Tutt  v.  Brown,  15  Ky.  Reports,  1. 
Facts:    The  facts  are  stated  in  the  opinion. 
Point  Involved:    The  right  of  an  undisclosed  principal 
to  sue  on  the  contract. 

By  the  Court,  Owsley,  J.:  " George  H.  Tutt,  the  son 
of  the  plaintiff,  Hansford  Tutt,  whilst  in  the  service  of 
his  father,  and  for  his  benefit,  contracted  with  the  de- 
fendant, Brown,  to  transport  in  his  father's  wagon,  a 
quantity  of  bagging,  to  Colonel  Pearce,  near  Huntsville, 
at  a  stipulated  price  to  be  paid  by  the  said  Brown ; 
*  *  *  whilst  contracting  with  Brown  *  *  * 
nothing  was  said  by  George  H.  Tutt  about  his  being  em- 
ployed in  the  service  of  his  father,  nor  does  it  appear 
that  Brown,  at  that  time  or  for  some  time  after  the 
bagging  was  transported  to  Pearce,  knew  that  the  service 
was  performed  by  the  son  for  the  benefit  of  the  father. 

"  Brown  failed  to  pay  the  said  George  H.  Tutt  the 
price  agreed  *  *  *  and  this  suit  was  brought  [by 
the  father] . 

"On  the  trial  in  the  court  below,  after  the  preceding 
facts  were  in  substance  proved,  the  jury  were  instructed 
by  that  court,  that  the  plaintiff  had  no  cause  of  action; 
but  that  the  right  of  suit  was  exclusively  in  the  son, 
George  H.  Tutt.  Whether  or  not  the  court  was  correct 
in  so  instructing  the  jury,  is  the  only  question  presented 
for  the  decision  of  this  court. 

"That,  in  moral  justice,  the  plaintiff  is  entitled  to  the 
price  agreed  to  be  paid  by  Brown  for  the  transporta- 
tion of  the  bagging,  is  a  proposition  that  none,  it  is  pre- 
sumed, will  pretend  to  controvert.  The  service,  though 
performed  by  George  H.  Tutt,  the  son,  was  not  for  his 
own  benefit,  but  for  the  benefit  of  the  plaintiff,  and  in 
justice  the  plaintiff  is  most  indisputably  entitled  to  the 
amount  which  was  agreed  to  be  paid  by  Brown.  Being, 
therefore,  entitled  to  the  price,  it  would  seem  to  follow 
as  a  necessary  consequence,  upon  general  principles,  that 


406  AGENCY 

the  plaintiff  is  entitled  to  maintain  an  action  to  recover 
it;  for  it  is  well  settled,  that  as  a  general  rule,  the  right 
of  property  draws  with  it  the  right  of  action.  The  right 
of  the  plaintiff  to  maintain  his  action,  would  be  unde- 
niable, if,  at  the  time  of  contracting  for  the  transporta- 
tion of  the  bagging,  the  son  had  made  known  to  Brown 
his  true  character  as  agent,  and  the  promise  of  Brown 
had  been  to  pay  the  price  to  the  plaintiff.  In  that  case, 
the  contract  of  Brown  though  made  with  the  son,  would, 
in  a  legal  sense,  be  considered  a  contract  with  the  father, 
and  of  course  the  father 's  right  to  sue  for  a  violation  of 
the  promise  of  Brown,  would  be  unquestionable.  But, 
at  the  time  of  making  the  contract  with  Brown,  the  cir- 
cumstance of  the  son  being  in  the  employment  and  acting 
for  the  benefit  of  the  father,  was  not  made  known  to 
Brown ;  and  the  question  arises,  whether  or  not  that  cir- 
cumstance affects  the  right  of  the  father  to  maintain  his 
action.  The  circumstance  of  the  son's  failing  to  disclose 
his  true  character  certainly  does  not  affect  the  justice  of 
the  father's  claim  for  the  price  agreed  to  be  paid  for 
the  service.  If  the  price  had  been  paid  by  Brown  to  the 
son,  the  son  would  be  responsible  for  the  amount,  and 
the  right  of  the  father  to  the  price  must  be  admitted  to  be 
the  same  before  it  is  paid  to  the  son,  that  it  would  be 
after  received  by  him.  By  failing  to  disclose  his  true 
character,  the  son  may  have  imposed  upon  himself  a 
personal  liability  to  Brown,  which  he  would  not  other- 
wise have  been  subject  to ;  but  he  cannot  have  thereby  de- 
prived the  father  of  the  price  agreed  to  be  paid  by  Brown 
for  transporting  the  bagging.  The  right  of  the  father 
to  the  price  is  nevertheless  the  same,  and  for  a  violation 
of  that  right  by  Brown,  the  law  must  be  admitted  to 
afford  him  a  remedy.  The  remedy  which  the  law  affords 
does  not,  however,  deprive  Brown  of  any  defense  which 
he  might  have  against  the  demand,  considered  as  belong- 
ing to  the  son;  for  having  contracted  with  the  son  with- 
out a  knowledge  of  his  true  character  of  agent,  Brown 
should  be  permitted  to  consider  him  as  principal,  so  as 
to  allow  him  to  avail  himself  of  any  defense  to  the  action 


EIGHTS  OF  UNDISCLOSED  PRINCIPAL  407 

by  the  principal,  that  would  have  been  admissible  against 
the  claim,  if  asserted  by  the  son.  Thus,  in  an  analogous 
case,  Lord  Mansfield  observed,  'where  a  factor,  dealing 
for  a  principal,  but  concealing  that  principal,  delivers 
goods  in  his  own  name,  the  person  contracting  with  him 
has  a  right  to  consider  him,  to  all  intents  and  purposes, 
as  the  principal ;  and  though  the  real  principal  may  ap- 
pear, and  bring  an  action  upon  that  contract  against  the 
purchaser  of  the  goods,  yet  that  purchaser  may  set-off 
any  claim  he  may  have  against  the  factor,  in  answer 
to  the  demand  of  the  principal.'  Paley  on  Agency,  253. 
"It  is,  therefore  the  opinion  of  the  Court,  that  the 
court  below  erred  in  its  instructions  to  the  jury,  and  that 
the  judgment  of  that  court  must  consequently  be  re- 
versed with  costs,  the  cause  remanded,  and  a  new  trial 
there  had. ' ' 

Question  228,:  Can  a  principal  recover  on  contracts  made  by 
the  agent  without  disclosing  the  principal  ?     Why  1 

Case  No.  229.    Kingsley  v.  Siebrecht,  92  Me.  23. 

Facts:  Suit  by  an  undisclosed  principal  on  a  contract 
in  writing  and  required  by  the  statute  of  frauds  to  be  in 
writing.  Defense  that  the  plaintiff  cannot  show  by  parol 
evidence  that  he  was  the  real  principal. 

Point  Involved:  Whether  or  not  a  contract  which  is 
in  writing  and  is  required  by  the  statute  of  frauds  to  be 
in  writing,  made  in  the  name  of  the  agent,  may  be  shown 
to  be  the  contract  of  an  undisclosed  principal. 

Savage,  J.:  "•  *  *  Two  questions  arise:  (1)  May 
the  undisclosed  principal  sue  upon  a  contract  made  in 
the  name  of  her  agent?  and  (2)  Is  it  competent  for  the 
undisclosed  principal  to  show  by  parol  that  the  party 
appearing  in  the  memorandum  to  be  the  contracting  party 
was  her  agent  only  and  contracted  in  her  behalf  and  thus 
be  enabled  to  maintain  an  action  on  the  contract? 

"We  think  both  questions  must  be  answered  in  the 
affirmative.    The  authorities  are  numerous  and  decisive 


408  AGENCY 

that  the  contract  of  the  agent  is  in  law  the  contract  of 
the  principal  and  the  latter  can  come  forward  and  sue 
thereon,  although  at  the  time  the  contract  was  made  the 
agent  acted  and  appeared  to  be  the  principal.  *  *  * 
1 'And  the  weight  of  authority,  we  think,  sustains  the 
proposition  that  in  case  of  a  memorandum  within  the 
statute  of  frauds,  where  the  name  of  the  agent  only  ap- 
pears, it  may  be  shown  by  parol  who  the  principal  is,  in 
support  of  an  action  by  the  latter. ' ' 

Question  229:    State  this  case. 

(Note :  If  the  written  contract  is  in  language  which  describes 
the  agent  as  a  principal,  it  has  been  held  to  be  contrary  to  the 
parol  evidence  rule  to  bring  in  parol  evidence  to  show  he  is  not 
a  principal.  Thus  in  Humble  v.  Hunter,  12  Q.  B.  (Eng.)  310, 
the  agent  contracted  as  "owner"  and  it  was  held  the  principal 
could  not  sue.) 

Sec.  188.    Exception  in  Case  of  Negotiable  Paper. 

(Note :  From  the  law  of  negotiable  paper  we  will  discover,  as 
we  have  already  noticed,  that  only  party  thereto  can  sue  or  be 
sued  thereon.  Hence  an  undisclosed  principal  cannot  sue  on  a 
negotiable  instrument  running  to  the  agent.  Of  course  in  case 
of  proper  negotiation  and  indorsement  to  him  he  could  sue 
thereon.) 

Sec.  189.    Exception  in  Case  of  Instrument  under  Seal. 

(Note:  Only  a  party  to  a  sealed  instrument  can  sue  or  be 
sued  thereon.  No  exception  is  made  to  this  rule  in  the  case  of 
an  undisclosed  principal.) 

Sec.  190.    Exception  Based  on  State  of  Accounts  and 
Equities  Between  Agent  and  Third  Person. 

Case  No.  230.    Eldridge  v.  Finniger,  25  Okla.  28. 
Facts:    George  C.  Eldridge,  trading  as  "Eldridge  Coal 
Co.,"  brings  suit  against  Finniger  for  $25.30  for  coal 


RIGHTS  OF  UNDISCLOSED  PRINCIPAL  409 

sold  to  Finniger.  Finniger  admits  the  debt  but  claims 
a  set  off  for  $23.00  for  a  suit  of  clothes  made  by  him  for 
Lloyd  Eldridge.  At  the  time  Finniger  bought  the  coal 
Lloyd  Eldridge  was  acting  and  described  as  "Pro- 
prietor ' '  of  the  Eldridge  Coal  Co.  and  Finniger  supposed 
him  to  be  the  owner,  there  being  nothing  to  indicate  the 
contrary.  When  he  ordered  the  coal  he  did  so  on  an 
agreement  that  Lloyd  would  order  a  suit  of  clothes,  which 
was  done,  but  they  were  never  paid  for.  Lloyd,  as  a  mat- 
ter of  fact,  was  merely  agent  for  Geo.  C,  who  now  sues 
as  undisclosed  principal. 

Point  Involved:  Whether  one  who  deals  with  another 
as  a  principal,  who  has  in  fact  an  undisclosed  principal, 
can  set  off  a  claim  against  such  agent  when  sued  by  the 
principal. 

Turner,  J. :  "  *  *  *  If  the  purchaser  of  property 
does  not  know  and  has  not  good  reason  to  know  that  he 
is  dealing  with  the  agent  of  the  owner,  he  is  justified  in 
treating  the  agent  as  owner.  *  *  *  In  this  case  it 
appears,  as  stated,  that  defendant  dealt  with  the  agent 
believing  him  to  be  the  principal  and  made  the  contract 
accordingly.  As  the  principal,  by  this  action,  now  seeks 
to  enforce  said  contract,  he  must  take  it  as  the  agent 
and  purchaser  left  it.  He  must  take  his  pay  as  the  agent 
agreed  to  receive  it.     *     *     * " 

Question  230:    State  the  facts  and  rule  of  this  case. 

Sec.  191.  Doctrine  Not  Applicable  to  Enforce  Obliga- 
tions of  Contract  Which  Are  of  Personal  Nature  with 
Agent. 

Case  No.  231.    Kelly  v.  Thuey,  102  Mo.  522. 

Facts:  Suit  by  undisclosed  principal,  James  T.  Kelly, 
to  compel  specific  performance  of  a  contract  to  convey 
real  estate  entered  into  between  Richard  Thuey  and  wife, 
as  vendors  with  D.  T.  Kelly,  as  purchaser.  The  contract 
provided  the  purchaser  should  pay  $950  in  cash  when 


410  AGENCY 

deed  delivered  and  $664  in  three  annual  installments. 
James  T.  Kelly  claims  to  be  the  real  principal. 

Point  Involved:  Whether  an  undisclosed  principal  can 
assert  the  right  to  compel  the  recognition  of  him  as  a 
party  to  an  executory  contract  involving  personal  credit 
(or  skill  or  other  personal  matter). 

Black,  J. :  *  *  *  *  *  This  broad  doctrine,  that  when 
an  agent  makes  a  contract  in  his  own  name  only,  the 
known  or  unknown  principal  may  sue  or  be  sued  there- 
on, may  be  applied  in  many  cases  with  safety  and  espe- 
cially in  cases  of  informal  commercial  contracts.  But 
it  is  certain  it  cannot  be  applied  where  exclusive  credit 
is  given  to  the  agent,  and  it  is  intended  by  -both  parties 
that  no  resort  shall  be  had  by  or  against  the  principal 
(Story  on  Agency,  §  160  a)  nor  does  it  apply  to  those 
cases  where  skill,  solvency  or  any  personal  quality  of 
one  of  the  parties  to  the  contract  is  a  material  ingre- 
dient in  it.  Now  in  this  case,  the  written  contract  is  full, 
complete  and  formal.  It  expresses  just  what  the  parties 
thereto  intended  it  should  express.  *  *  *  To  admit 
parol  evidence  to  show  that  D.  T.  Kelly  acted  as  agent 
of  the  plaintiff  and  then  substitute  or  add  the  plaintiff 
as  a  party  is  simply  to  make  a  new  contract  for  the 
parties.     *     *     *" 

Question  231:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  A  offered  to  sell  B  a  horse.  B  inquired  if  the  horse 
belonged  to  C.  A  said  "No."  B  said  that  that  being  the  case 
he  would  take  the  horse,  and  the  bargain  was  struck.  Later,  B 
learns  that  the  horse  belongs  to  C  and  refuses  to  take  the  horse. 
C  sues  on  the  contract.  Recover?  (Winchester  v.  Howard,  97 
Mass.  303.) 

(Note:    Accord  Cowan  v.  Curran,  216  111.  598.) 


PART    VIII 

TERMINATION  OF  THE  RELATION  OF  PRINCIPAL 
AND  AGENT 

Chapter  Thirty-two.  By  Agreement  of  the  Parties. 
Chapter  Thirty-three.  By  Revocation  of  Authority. 
Chapter  Thirty-four.       By  Operation  of  Law. 

CHAPTER    THIRTY-TWO 

TERMINATION  BY  AGREEMENT  OF  THE  PARTIES 

§  192.  By  the  operation  of  the  orig-      §  193.  By  subsequent  agreement, 
inal  agreement. 

Sec.  192.     By  the  Operation  of  the  Original  Agreement. 

(Note :  The  agency  may  terminate  because  the  object  is  ac- 
complished for  which  it  was  created ;  or  because  the  time  elapses 
during  which  by  the  agreement  it  was  to  endure.  But  the  em- 
ployment may  be  for  an  indefinite  duration,  with  a  right  in 
either  party  to  terminate  at  any  time,  either  with,  or  without 
notice,  according  to  the  terms  of  the  contract.) 

Sec.  193.      By  Subsequent  Agreement. 

(Note:  The  parties  may  of  course  modify  their  original 
agreement  by  a  subsequent  agreement  by  which  the  relation  is 
abandoned.    The  general  law  of  contracts  governs.) 


411 


CHAPTER    THIRTY-THREE 
BY  REVOCATION  OF  AUTHORITY 

§  194.  Power  to  revoke  and  right  to       §  196.  Irrevocable  agencies, 
revoke   distinguished.  §  197.  Notice  of  revocation. 

§  195.  Right  to  revoke. 

Sec.  194.     Power  to  Revoke  and  Right  to  Revoke 
Distinguished. 

(Note :  See  case  No.  233,  post.  It"  is  obvious  from  the  cases 
that  a  principal  has  the  power  to  revoke,  irrespective  of  the 
question  whether  he  has  the  right.  An  exception  to  this  is  shown 
in  Sec.  196.) 

Sec.  195.      Right  to  Revoke. 
(See  generally  the  cases  as  to  the  duty  of  the  agent.) 
Sec.  196.     Irrevocable  Agencies. 

Case  No.  232.    Chambers  v.  Seay,  73  Ala.  372. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  That  powers  coupled  with  an  interest 
or  to  effectuate  a  security  are  irrevocable.  To  inquire: 
Whether  the  power  in  this  case  was  such  a  power. 

Somerville,  J.:  "The  main  contention  in  this  case 
involves  the  right  of  the  principal  to  revoke  the  agent's 
authority  to  sell,  so  as  to  deprive  the  latter  of  his  com- 
missions. 

412 


IRREVOCABLE  AGENCIES  413 

"The  agreement,  which  is  the  basis  of  this  suit,  is  in 
writing,  bearing  date  February  28,  1878,  and  is  signed 
by  both  the  plaintiff  and  defendant.  Its  substance  is 
briefly  as  follows:  Seay  was  the  owner  of  a  tract  of 
land  in  Talladega  county,  valuable  for  the  quantity  of 
iron  ore  it  was  known  to  contain.  He  placed  this  land 
in  the  hands  of  Chambers  for  sale,  subject  to  Seay's 
ratification,  if  he  (Seay)  should  'deem  the  price  to  be 
paid  for  said  property  sufficient  to  warrant  a  sale.' 
Chambers,  on  his  part,  agreed  to  undertake  the  sale  of 
the  land,  and  to  this  end  undertook  and  promised  to 
transport  specimens  of  ore  taken  from  it  to  Birming- 
ham, England,  for  inspection  there ;  and  also  to  advertise 
the  property  in  one  respectable  paper  in  each  of  the 
cities  of  Birmingham  and  London,  England.  By  way  of 
compensation  for  his  services  and  expenses,  it  was  stip- 
ulated that  Chambers  should  receive  'an  undivided  one- 
fourth  interest  in  the  proceeds  of  sale  when  sold  as 
aforesaid,'  and  his  right  to  sell  was  made  'exclusive.' 

"The  evidence  tends  to  show  that  Seay  revoked  the 
agency  of  Chambers  in  January,  1880,  and  very  soon 
afterwards  himself  sold  the  property  to  one  Glidden  for 
the  sum  of  twenty  thousand  dollars.  The  circuit  court 
charged  the  jury,  that  the  agreement  in  question  was  a 
mere  revocable  agency,  which  could  be  recalled  by  the 
principal,  Seay,  at  any  time  before  it  had  been  executed 
by  his  making  a  sale  of  the  property;  and  if  it  was  so 
revoked  prior  to  the  sale  made  by  Seay  to  Glidden,  then 
Chambers  was  not  entitled  to  recover  any  commissions. 

"The  rule  is  not  denied,  that,  in  ordinary  cases,  a 
principal,  who  has  empowered  an  agent  to  sell,  may  at 
any  time  before  sale  revoke  the  agent's  authority.  It 
is  equally  true  that  the  usual  theory  of  commissions  is, 
that  the  agent  is  to  receive  them  only  in  the  event  of  suc- 
cess. Wood's  Mayne  on  Damages  (Amer.  Ed.),  §§  746- 
747. 

"  It  is  argued  that  the  present  agreement  does  not  come 
within  this  general  rule,  because  it  confers  on  the  agent 
a  power  coupled  with  an  interest,  and  that  such  power  is 


414  AGENCY 

irrevocable.  It  is  a  generally  admitted  proposition  of 
law,  that  a  principal  is  not  permitted  to  revoke  the 
authority  of  his  agent,  where  such  authority  is  coupled 
with  an  interest,  or  where  it  is  necessary  to  effectuate 
a  security.  EwelPs  Evans  on  Agency,  marg.  page,  83. 
These  are  the  two  established  exceptions,  which  seem,  in- 
deed, to  be  essentially  similar  in  principle.  It  is  con- 
tended that  the  agency  of  the  plaintiff,  Chambers,  comes 
within  the  influence  of  the  first  exception,  as  being 
coupled  with  an  interest,  and  it  was  not  competent,  there- 
fore for  Seay  to  revoke  it.  It  is  not  any  interest,  how- 
ever, that  will  suffice  to  render  an  agency  irrevocable. 
An  interest  in  the  proceeds  of  sale,  or  money  derived 
from  the  sale  of  property  by  an  agent  is  not  sufficient 
for  this  purpose.  Barr  v.  Schroeder,  32  Cal.  609 ;  Hart- 
ley's  Appeal,  53  Penn.  St.  212;  Gilbert  v.  Holmes,  64  111. 
549.  To  be  irrevocable,  it  seems  now  well  settled,  that 
the  power  conferred  must  create  an  interest  in  the  thing 
itself,  or  in  the  property  which  is  the  subject  of  the 
power.  In  other  words,  'the  power  and  estate  must  be 
united  and  co-existent, '  and,  possibly,  of  such  a  nature 
that  the  power  would  survive  the  principal  in  the  event 
of  the  latter 's  death,  so  as  to  be  capable  of  execution  in 
the  name  of  the  agent.  Blackstone  v.  Buttermore,  53 
Penn.  St.  266;  Bonney  v.  Smith,  17  111.  531;  Mansfield  v. 
Mansfield,  6  Conn.  559;  Hunt  v.  Rousmanier,  8  Wheat. 
174;  Evans  on  Agency  (Ewell),  marg.  page,  83,  note, 
and  p.  85 ;  Raleigh  v.  Atkinson,  6  M.  W.  670.  In  Hunt  v. 
Rousmanier,  supra,  such  a  power  was  defined  by  Chief 
Justice  Marshall  to  be  one  'engrafted  on  an  estate  in 
the  thing  itself. ' 

"The  power  conferred  on  Chambers  was  not  of  this 
nature  very  clearly.  He  had  no  interest  in  the  subject- 
matter  of  his  agency,  the  land  itself.  He  was  interested 
only  in  the  money  to  be  derived  as  the  proceeds  of  the 
sale  of  the  land,  which  could  only  be  realized  by  the  com- 
pletion of  his  agency,  or  by  some  negotiation  which  was 
tantamount  to  it.  He  had  parted  with  no  money,  or  other 
value,  for  the  security  of  which  the  power  of  sale  was 


IRREVOCABLE  AGENCIES  415 

conferred  in  the  agreement.  He  had  risked  in  the  ven- 
ture of  his  agency  only  his  personal  services  and  the 
expenses  incidental  to  its  execution.  The  undertaking 
to  transport  specimens  of  iron  ore  to  England,  and  to 
advertise  the  lands  there,  may  be  embraced  as  a  part  of 
the  ordinary  expense  to  be  incurred  in  the  usual  course 
of  such  an  employment.  It  is  fair  to  presume  that  he 
risked  this  much  in  view  of  the  large  compensation  to  be 
reaped  as  commissions,  in  the  event  of  a  successful  sale. 
Simpson  v.  Lamb,  17  C.  B.  603. 

"It  is  insisted  further  that  the  agency  is  rendered 
irrevocable  by  reason  of  the  fact,  that  the  power  of  sale 
conferred  on  Chambers  was  stipulated  to  be  exclusive. 
This  can  not  be  stronger  than  the  use  of  the  word  'ir- 
revocable,' Avhich  has  been  construed  to  fail  of  such  a 
purpose,  unless  the  agency  comes  with  the  exceptions 
above  discussed.  In  the  case  of  a  naked  power,  an  ex- 
press declaration  of  irrevocability  will  not  prevent  revo- 
cation. McGregor  v.  Gardner,  14  Iowa,  326 ;  Blackstone 
v.  Buttermore,  53  Penn.  St.  266. 

"The  chief  difficulty  arises  in  those  cases  where  the 
agent  has  incurred  trouble  and  expense  in  the  execution 
of  his  agency,  and  has  been  prevented  from  effecting  a 
sale  by  the  interference  of  his  principal,  whether  by 
revocation  of  his  authority,  or  otherwise.  It  is  not  just, 
it  is  true,  for  a  principal  to  revoke  an  agent's  authority 
without  paying  him  for  labor  and  expense  reasonably 
incurred  in  the  course  of  the  agent's  employment.  Un- 
less otherwise  stipulated,  the  agent  may,  in  a  proper 
form  of  action,  ordinarily  claim  reimbursement  for  the 
value  of  these.  Evans'  Agency  (Ewell),  marg.  p.  83-84. 
So  where  a  sale  of  property  is  brought  about  by  the 
advertisements  or  exertions  of  a  broker  or  agent,  the 
broker  being  the  efficient  cause  of  the  sale,  and  the  pur- 
chaser being  found  through  his  instrumentality,  he  may 
often  recover  his  commissions.  Sussdorf  v.  Schmidt, 
55  N.  Y.  319 ;  Earp  v.  Cummins,  54  Penn.  St.  394.  These 
are  mentioned  as  just  qualifications  of  the  general  rule, 
to  which  we  have  above  adverted,  touching  the  subject 


416  AGENCY 

of  the  revocation  of  an  agent's  authority  by  his  prin- 
cipal. 

1 '  The  pleadings  in  the  present  case,  upon  which  it  was 
tried,  are  framed  very  clearly  with  reference  to  a  re- 
covery of  the  stipulated  commissions  promised  to  Cham- 
bers, and  the  gravamen  of  the  action  is,  in  effect,  alleged 
to  be  the  wrongful  revocation  of  the  agency  by  act  of 
the  principal.  We  need  not,  for  this  reason,  discuss  the 
question  as  to  the  plaintiff's  right  to  recover  for  the 
value  of  his  services,  or  for  expenses  incurred.  The  first 
and  fifth  counts  were  in  assumpsit.  Myers  v.  Gilbert,  18 
Ala.  467.  The  demurrer  for  misjoinder  was  consequent- 
ly well  taken,  and  was  properly  sustained  by  the  court. 

"The  rulings  of  the  circuit  court  were  in  accordance 
with  the  above  views,  and  its  judgment  must  be  affirmed. ' ' 

Question  232:    (1.)     "What  was  the  power  in  this  case  ? 

(2.)  What  powers  are  irrevocable  ?  Suppose  in  this  case  the 
principal  had  had  no  right  to  revoke,  would  that  have  had  any 
bearing  on  the  question  whether  the  agency  was  revocable? 

(3.)  Does  the  declaration  in  an  appointment  that  it  is  irre- 
vocable make  it  so? 

(4.)  Would  the  fact  that  the  agent  had  gone  to  expense  in 
the  agency,  of  itself,  make  it  irrevocable  ? 

(5.)  A  loaned  B,  $1,000,  and  as  a  part  of  the  same  transaction 
appointed  B  his  agent  to  collect  debts  due  A,  as  security  for  the 
loan.     Could  A  revoke  this  authority? 

Case  No.  233.  McKellop  v.  Dewitz,  140  Pac.  (Okla.) 
1161. 

Facts:  McKellop  and  wife,  owning  certain  real 
estate,  gave  Dewitz  "the  sole  and  exclusive  privilege  of 
selling  the  lots  in  said  addition"  at  such  prices  as  De- 
witz could  get,  not  less  than  certain  prices  named.  De- 
witz undertook  on  his  part  "to  use  his  best  efforts"  and 
"to  give  his  time  and  attention  to  the  work  of  selling 
such  lots."  One-half  of  the  expense  in  selling  such  lots 
to  be  borne  by  the  owners  and  one-half  by  the  agent,  such 
expenses  to  include  cost  of  grading  streets  and  alleys, 
printing  of  abstracts,  etc.    The  agent  also  agreed  to  pay 


IRREVOCABLE  AGENCIES  417 

one-half  of  the  amount  necessary  to  pay  a  certain  note 
and  mortgage  of  $3,300  on  said  premises. 

McKellop  and  wife  chose  to  revoke  this  agency  and 
bring  this  suit  to  quiet  their  title  in  said  land  against 
Dewitz.  Dewitz  contends  that  he  has  an  interest  in  the 
agency  and  that  the  same  is  irrevocable. 

Point  Involved:  When  is  an  agency  deemed  to  be 
coupled  with  an  interest  and  therefore  irrevocable. 

Judge:  "The  assignments  of  error  present  the  one 
question  as  to  whether  or  not  the  agency  created  in  De- 
witz by  the  written  contract  was  '  an  agency  coupled  with 
an  interest,'  and  not  subject  to  be  revoked  by  the  McKel- 
lops  at  their  pleasure.  As  to  this  character  of  agency, 
the  rule  is  announced  by  Mr.  Mechem  in  his  work  on 
Agency,  par.  204: 

' '  '  The  authority  of  the  agent  to  represent  the  principal 
depends  upon  the  will  and  license  of  the  latter.  It  is  the 
act  of  the  principal  which  creates  the  authority;  it  is 
for  his  benefit  and  to  subserve  his  purposes  that  it  is 
called  into  being;  and,  unless  the  agent  has  acquired 
with  the  authority  an  interest  in  the  subject-matter,  it 
is  in  the  principal's  interest  alone  that  the  authority  is 
to  be  exercised.  The  agent  obviously,  except  in  the  in- 
stance mentioned,  can  have  no  right  to  insist  upon  a 
further  execution  of  the  authority  if  the  principal  him- 
self desires  it  to  terminate.  It  is  the  general  rule  of  law, 
therefore,  that,  as  between  the  agent  and  his  principal, 
the  authority  of  the  agent  may  be  revoked  by  the  prin- 
cipal at  his  will  at  any  time,  and  with  or  without  good 
reason  therefor,  except  in  those  cases  where  the  author- 
ity is  coupled  with  a  sufficient  interest  in  the  agent. ' 

"And  again  the  same  authority  says  in  paragraph  205 : 

"  'What  interest  in  the  agent  will  be  sufficient  to  ren- 
der the  authority  irrevocable  is  not  easy  of  exact  and 
comprehensive  definition.  Certain  it  is,  however,  that  it 
is  not  any  interest  which  will  suffice.  But  it  must  be  an 
interest  or  estate  in  the  thing  itself  or  in  the  property 
which  is  the  subject  of  the  power;  the  power  and  the 
estate  must  be  united  and  coexistent,  and  generally  of 


418  AGENCY 

such  a  nature  that  the  power  would  survive  the  princi- 
pal in  such  a  way  as  to  be  capable  of  execution  in  the 
agent 's  name  after  the  death  of  the  principal. ' 
"And  again  in  paragraph  207  the  same  authority  says : 
"  'Thus,  where  one  is  given  authority  to  sell  the  lands 
or  other  property  of  another,  and  is  to  have  a  certain 
commission  or  share  out  of  the  proceeds  for  making  the 
sale,  the  authority  may  be  revoked  at  the  will  of  the 
principal,  even  though  in  terms  it  was  declared  to  be 
exclusive  or  irrevocable.  *  *  *  The  interest  in  the 
commissions  to  be  earned  and  in  the  moneys  expended  in 
endeavoring  to  carry  out  the  agency  is  not  sufficient  to 
present  revocation.'     *     *     * 

"A  careful  consideration  of  the  contract  clearly  shows 
that  no  interest  in  the  real  estate  was  conveyed  by  it  to 
the  agent,  Dewitz.  The  terms  of  the  contract  do  not 
justify  the  conclusion  that  there  was  any  attempt  or  in- 
tention to  convey  to  the  agent  any  part  of  the  title  or 
any  distinct  interest  or  estate  in  the  real  estate  itself. 
The  interest  created  in  or  conveyed  to  the  agent  was  a 
definite  part  of  the  proceeds  of  sales,  an  interest  in  the 
result — the  thing  produced  by  the  exercise  of  the  power 
— and  therefore  the  contract  cannot  be  properly  said  to 
be  'a  power  coupled  with  an  interest.'  It  is  true  that, 
if  the  agreement  had  been  fully  completed,  the  agent 
might  have  claimed  under  it  an  interest  in  that  part  of 
the  property  remaining  after  a  sufficient  amount  had 
been  sold  to  satisfy  the  Beard  mortgage;  yet  this  par- 
ticular interest  was  contingent  and  did  not  vest  upon  the 
execution  and  delivery  of  the  contract.  It  was  not  such 
an  interest  as  the  agent  could  have  conveyed  in  his  own 
name  in  the  event  of  the  death  of  the  principals.  It  is 
equally  clear  that  there  is  nothing  in  the  terms  of  the 
contract  to  justify  the  claim  that  it  was  the  purpose  or 
intention  of  the  parties  to  create  a  lien  on  the  land  in 
favor  of  the  agent  to  secure  his  stipulated  contingent 
commissions,  as  in  American  Loan  &  Trust  Co.  v.  Bill- 
ings, 58  Minn.  187,  59  N.  W.  998.  The  most  that  can  be 
claimed  for  this  writing  is  that  it  was  a  contract  of  em- 


NOTICE  OF  REVOCATION  419 

ployment  and  that  the  relation  created  by  it  might  be 
terminated  at  the  will  of  the  principal. 

1 'We  therefore  conclude  that  the  trial  court  was  in 
error  in  holding  that  the  contract  created  in  the  agent 
an  interest  in  the  property  itself  and  was  a  'power 
coupled  with  an  interest,'  and  therefore  irrecoverable 
by  the  principal. 

' '  However,  it  does  not  follow  from  this  conclusion  that 
the  power  to  revoke  the  agency  was  rightfully  exercised 
by  the  principal.  If  the  power  was  not  rightfully  exer- 
cised, the  principal  may  be  liable  to  respond  in  dam- 
ages for  any  wrong  inflicted  upon  the  agent  by  the 
revocation.  The  contract  is  silent  as  to  the  time  the 
agency  or  employment  should  exist,  but  it  is  stipulated 
that  the  agent  should  pay  certain  expenses  and  give  his 
entire  time  in  accomplishing  the  purposes  of  the  agency. 
It  is  alleged  in  the  answer  that  the  agent  had  paid  out 
large  sums  of  money  under  the  contract,  and  that  he  had 
faithfully  kept  and  performed  each  and  every  part  of 
the  contract  to  be  by  him  kept  and  performed.  If  these 
things  are  true,  he  has  been  damaged  by  the  revocation 
of  the  agency,  and  the  principal  may  be  liable  to  respond 
in  damages.  Cloe  v.  Rogers,  31  Okl.  255,  121  Pac.  201, 
38  L.  R.  A.  (N.  S.)  366.  Although  the  pleadings  were 
not  cast,  and  the  case  tried  upon  the  theory  of  the  law 
as  announced  in  Cloe  v.  Rogers,  supra,  we  are  inclined 
to  the  opinion  that,  when  the  case  gets  back  in  the  trial 
court,  permission  should  be  given  to  amend  the  plead- 
ings so  as  to  include  that  theory  of  the  law,  if  the  parties 
wish  to  do  so." 

Question  233:  State  the  facts  in  this  case  and  the  Court's 
decision. 

Sec.  197.     Notice  of  Revocation. 

Case  No.  234.     Claflin  v.  Lenheim,  66  N.  Y.  301. 
Facts:    Suit  brought  by  Claflin  &  Co.  against  L.  S. 
Lenheim  for  goods  alleged  to  have  been  bought  by  Len- 


420  AGENCY 

heim,  through  his  brother,  H.  S.  Lenheim,  as  his  agent. 
Defendant,  H.  S.  L.,  had  one  store  at  Great  Bend,  Pa., 
and  he  conducted  another  store  at  Meadsville,  Pa.,  for 
several  years  with  his  brother  as  the  agent  in  charge, 
who  as  such  agent  had  bought  goods  from  plaintiffs  for 
several  years  prior  to  July,  1867.  Just  prior  to  that 
date,  they  sold  a  bill  of  goods  to  defendant  at  the  Mead- 
ville  store  amounting  to  about  $8,000  and  this  was  paid 
in  August,  1867,  but  there  was  a  difficulty  about  the  bill 
and  the  parties  ceased  to  deal  with  each  other  until 
October,  1869.  The  store  at  Meadsville  was  burned  in 
July,  1867,  and  defendant  admits  that  the  brother  had 
authority  before  the  fire,  but  claims  at  about  that  time  it 
was  revoked.  In  November  and  December,  1869,  the 
brother  made  the  purchases  that  are  now  in  controversy, 
making  them  ostensibly  as  the  agent  of  the  defendant  for 
the  Meadsville  store. 

Rapallo,  J.:    "*     *     * 

*  'It  is  a  familiar  principle  of  law  that  when  one  has 
constituted  and  accredited  another  his  agent  to  carry  on 
a  business,  the  authority  of  the  agent  to  bind  his  prin- 
cipal continues,  even  after  an  actual  revocation,  until 
notice  of  the  revocation  is  given ;  and,  as  to  persons  who 
have  been  accustomed  to  deal  with  such  agent,  until 
notice  of  the  revocation  is  brought  home  to  them.  The 
case  of  such  an  agency  is  analogous  to  that  of  a  part- 
nership, and  the  notice  of  revocation  of  the  agency  is 
governed  by  the  same  rules  as  notice  of  the  dissolution 
of  a  partnership.  As  to  persons  who  have  been  previous- 
ly in  the  habit  of  dealing  with  the  firm,  it  is  requisite 
that  actual  notice  should  be  brought  home  to  the  creditor, 
or  at  least,  that  the  credit  should  have  been  given  under 

circumstances  from  which  notice  can  be  inferred. 

n*     *     * 

"But  the  court  submitted  to  the  jury  the  further  ques- 
tion whether,  independently  of  the  question  of  notice  in 
fact,  the  circumstances  were  such  as  to  put  the  plaintiffs 
on  inquiry  as  to  whether  the  authority  of  the  agent  con- 


NOTICE  OF  REVOCATION  421 

tiimed,  and  charged  them  that  if  they  were,  the  plain- 
tiffs were  charged  with  notice  of  the  facts  which  the 
inquiry  would  have  disclosed.  In  other  words,  the  ques- 
tion was  submitted  to  the  jury  whether,  although  the 
plaintiffs  had  no  notice  in  fact,  they  had  constructive 

notice  of  the  revocation  of  the  agency. 

n  *     *     * 

' '  The  mere  fact  that  the  store  at  Meadville  was  burnt 
did  not  indicate  that  the  defendant  intended  to  discon- 
tinue business  there ;  and  if  business  had  been  promptly 
resumed  and  purchases  for  that  store  renewed  by  the  de- 
fendant's  brother,  there  could  have  been  no  reason,  in 
the  absence  of  any  notice  from  the  defendant,  to  suppose 
that  the  agency  had  been  discontinued.  The  principal 
feature  in  the  case  is  the  delay  of  two  years  and  up- 
wards between  the  fire  and  resumption  of  purchases,  by 
the  defendant's  brother,  for  the  Meadville  store.  But, 
under  the  circumstances,  this  delay  might  well  have  been 
attributed  by  the  plaintiffs  to  the  difficulty  between  them 
and  the  defendant,  in  July  and  August,  1867,  which  re- 
sulted in  the  defendant  suspending  all  dealings  with  the 
plaintiffs,  notwithstanding  that  he  continued  his  business 
at  Great  Bend.  And  when  the  defendant,  in  1869,  re- 
sumed his  dealings  with  the  plaintiffs,  without  giving 
them  notice  of  any  change  in  his  business  arrangements 
with  his  brother,  at  Meadville,  the  plaintiffs  were  war- 
ranted in  believing  that  the  suspension  of  the  dealings  of 
the  brother  was  attributable  to  the  same  cause  which 
had  deterred  the  defendant  himself  from  making  pur- 
chases ;  and  when,  immediately  after  the  defendant  him- 
self resumed  dealings,  .the  brother  applied  to  make  pur- 
chases as  before,  for  the  Meadville  store,  the  plaintiffs 
would  not,  naturally,  attribute  the  suspension  of  deal- 
ings for  that  store,  in  the  meantime,  to  a  revocation  of 
the  agency,  nor  suspect  that  the  brother  was  committing 
a  fraud.  We  must,  in  considering  the  portion  of  the 
charge  excepted  to,  assume,  as  we  have  assumed,  that 
no  notice  was  given  by  the  defendant  to  the  plaintiffs 
that  he  had  discontinued^  his  business  at  Meadville  or 


422  AGENCY 

revoked  the  authority  of  his  brother,  and  that  the  plain- 
tiffs knew  nothing  of  it,  for  the  charge  expressly  submits 
the  question  of  constructive  notice,  independently  of  the 
question  of  notice  in  fact,  and  expressly  states  that  the 
jury  are  to  pass  upon  it  in  case  they  find  that  there  was 
no  notice  in  fact. 

4 '  We  think  that  the  circumstances  existing  at  the  time 
of  the  sale  of  the  goods  in  question  were  not  sufficient 
to  constitute  constructive  notice  of  the  revocation  of  the 
agency,  and  that  the  case  should  have  been  submitted  to 
the  jury  only  upon  the  question  of  notice  in  fact.  In 
this  there  is  no  hardship  upon  the  defendant;  it  was  his 
duty,  after  he  had  accredited  his  brother  for  a  series  of 
years  as  authorized  to  deal  in  his  name  and  on  his  re- 
sponsibility, when  he  terminated  that  authority,  to  notify 
all  parties  who  had  been  in  the  habit  of  dealing  with  his 
agent,  as  the  plaintiffs  had  been  to  his  knowledge.  This 
was  an  act  easily  performed  and  would  have  been  a  per- 
fect protection  to  him  and  prevented  the  plaintiffs  from 
being  deceived.  Justice  to  parties  dealing  with  agents 
requires  that  the  rule  requiring  notice  in  such  cases 
should  not  be  departed  from  on  slight  grounds,  or  dubious 
or  equivocal  circumstances  substituted  in  place  of  notice. 
If  notice  was  not  in  fact  given,  and  loss  happens  to  the 
defendant,  it  is  attributable  to  his  neglect  of  a  most  usual 
and  necessary  precaution." 

Question  234:  What  is  the  rule  as  to  the  notice  that  must  be 
given  of  the  termination  of  the  agency  ? 


CHAPTER    THIRTY-FOUR 
TERMINATION  BY  OPERATION  OF  LAW 

§  198.  Death    or    insanity    of    prin^  §  200.  Destruction  or  change  in  sub- 
cipal.  ject  matter. 

§  199.  Death    or    insanity    of    the  §  201.  War. 

agent.  §202.  Bankruptcy. 

Sec.  198.      Death  or  Insanity  of  Principal. 

(See  Yerrington  v.  Greene,  7  E.  I.  589,  set  out  as  Case 
No.  149,  supra.) 

(Note :  An  exception  to  this  rule  is  when  the  agency  is  coupled 
with  an  interest.) 

Sec.  199.    Death  or  Incapacity  of  Agent. 

(See  Yerrington  v.  Greene,  supra.) 

(Note :  An  exception  is  in  case  of  an  agency  coupled  with  an 
interest. ) 

Sec.  200.     Destruction  of  or  Change  in  Subject  Matter. 

(Note:  Whether  a  change  in  or  destruction  of  the  subject- 
matter  renders  agency  at  an  end  depends  entirely  on  question 
whether  the  continued  existence  of  such  subject-matter  in  its 
present  state  was  impliedly  understood  by  the  parties  as  neces- 
sary to  a  performance  of  the  agency.  See  the  cases  on  contracts 
under  Impossibility  of  Performance.) 

423 


424  AGENCY 

Sec.  201.     Termination  by  War. 

Case  No.  235.    Insurance  Co.  v.  Davis,  95  U.  S.  424. 

Facts:  Suit  on  policy  of  life  insurance  issued  by  New 
York  Life  Ins.  Co.  of  New  York  before  the  war  on  life  of 
Sloman  Davis  of  Virginia,  containing  a  provision  that 
policy  was  to  be  void  if  premiums  not  promptly  paid. 
The  company's  agent  in  Virginia  was  one  A.  B.  Garland, 
who  on  the  outbreak  of  the  war  became  a  Confederate 
major.  After  the  war  the  premiums  were  tendered  to 
him,  but  he  declined  to  receive  them. 

Point  Involved:  Whether  war  terminates  relation  of 
principal  and  agent  between  citizens  of  the  hostile 
powers. 

Mb.  Justice  Beadley  :    ' '  *     *     * 

"But  we  deem  it  proper  to  consider  more  particularly 
the  question  of  agency,  and  the  alleged  right  of  tendering 
premiums  to  an  agent,  during  the  war. 

"That  war  suspends  all  commercial  intercourse  be- 
tween the  citizens  of  two  belligerent  countries  or  states, 
except  so  far  as  may  be  allowed  by  the  sovereign  author- 
ity, has  been  so  often  asserted  and  explained  in  this  court 
within  the  last  fifteen  years,  that  any  further  discussion 
of  that  proposition  would  be  out  of  place.  As  a  conse- 
quence of  this  fundamental  proposition,  it  must  follow 
that  no  active  business  can  be  maintained,  either  per- 
sonally or  by  correspondence,  or  through  an  agent,  by 
the  citizens  of  one  belligerent  with  the  citizens  of  the 
other.  The  only  exception  to  the  rule  recognized  in  the 
books,  if  we  lay  out  of  view  contracts  for  ransom  and 
other  matters  of  absolute  necessity,  is  that  of  allowing 
the  payment  of  debts  to  an  agent  of  an  alien  enemy, 
where  such  agent  resides  in  the  same  state  with  the 
debtor.  But  this  indulgence  is  subject  to  restrictions. 
In  the  first  place,  it  must  not  be  done  with  the  view  of 
transmitting  the  funds  to  the  principal  during  the  con- 
tinuance of  the  war;  though,  if  so  transmitted  without 
the  debtor 's  connivance,  he  will  not  be  responsible  for  it. 


TERMINATION  42§ 

Washington,  J.,  in  Conn  v.  Penn,  Pet.  C.  Ct.  496 ;  Buchan- 
an v.  Curry,  19  Johns.  (N.  Y.)  141.  In  the  next  place,  in 
order  to  the  subsistence  of  the  agency  during  the  war,  it 
must  have  the  assent  of  the  parties  thereto, — the  prin- 
cipal and  the  agent.  As  war  suspends  all  intercourse  be- 
tween them,  preventing  any  instructions,  supervision,  or 
knowledge  of  what  takes  place,  on  the  one  part,  and  any 
report  or  application  for  advice  on  the  other,  this  rela- 
tion necessarily  ceases  on  the  breaking  out  of  hostilities, 
even  for  the  limited  purpose  before  mentioned,  unless 
continued  by  the  mutual  assent  of  the  parties. ,  It  is  not 
compulsory ;  nor  can  it  be  made  so,  on  either  side,  to  sub- 
serve the  ends  of  third  parties.  If  the  agent  continues  to 
act  as  such,  and  his  so  acting  is  subsequently  ratified  by 
the  principal,  or  if  the  principal's  assent  is  evinced  by 
any  other  circumstances,  then  third  parties  may  safely 
pay  money,  for  the  use  of  the  principal,  into  the  agent's 
hands ;  but  not  otherwise.  It  is  not  enough  that  there  was 
an  agency  prior  to  the  war.  It  would  be  contrary  to 
reason  that  a  man,  without  his  consent,  should  continue 
to  be  bound  by  the  acts  of  one  whose  relations  to  him  have 
undergone  such  a  fundamental  alteration  as  that  produced 
by  a  war  between  the  two  countries  to  which  they  re- 
spectively belong ;  with  whom  he  can  have  no  correspond- 
ence, to  whom  he  can  communicate  no  instructions,  and 
over  whom  he  can  exercise  no  control.  It  would  be 
equally  unreasonable  that  the  agent  should  be  compelled 
to  continue  in  the  service  of  one  whom  the  law  of  nations 
declares  to  be  his  public  enemy.  If  the  agent  has  prop- 
erty of  the  principal  in  his  possession  or  control,  good 
faith  and  fidelity  to  his  trust  will  require  him  to  keep  it 
safely  during  the  war,  and  to  restore  it  faithfully  at  its 
close.  This  is  all.  The  injustice  of  holding  a  principal 
bound  by  what  an  agent,  acting  without  his  assent,  may 
do  in  such  cases,  is  forcibly  illustrated  by  Mr.  Justice 
Davis,  in  delivering  the  opinion  of  this  Court  in  Fretz 
v.  Stover,  22  Wall.  198.  In  that  case,  the  agent  had  col- 
lected in  Confederate  funds  the  amount  due  on  a  bond. 
Having  asserted  that  the  agent  had  no  authority  to  do 


426  AGENCY 

this,  the  learned  Justice  adds:  'If  it  were  otherwise, 
then,  as  long  as  the  war  lasted,  every  Northern  creditor 
of  Southern  men  was  at  the  mercy  of  the  agent  he  had 
employed  before  the  war  commenced.  And  his  condi- 
tion was  a  hard  one.  Directed  by  his  government  to 
hold  no  intercourse  with  his  agent,  and  therefore  unable 
to  change  instructions  which  were  not  applicable  to  a 
state  of  war,  yet  he  was  bound  by  the  acts  of  his  agent 
in  the  collection  of  his  debts,  the  same  as  if  peace  pre- 
vailed. It  would  be  a  reproach  to  the  law,  if  creditors, 
without  fault  of  their  own,  could  be  subjected  to  such 
ruinous  consequences. '  These  observations  have  a  strong 
bearing  upon  the  point  now  under  consideration. 

"What  particular  circumstances  will  be  sufficient  to 
show  the  consent  of  one  person  that  another  shall  act  as 
his  agent  to  receipt  payment  of  debts  in  an  enemy 's  coun- 
try during  war,  may  sometimes  be  difficult  to  determine. 
Emerigon  says,  that  if  a  foreigner  is  forced  to  depart 
from  one  country  in  consequence  of  a  declaration  of  war 
with  his  own,  he  may  leave  a  power  of  attorney  to  a 
friend  to  collect  his  debts,  and  even  to  sue  for  them. 
Traite  des  Assurances,  vol.  i,  567.  But  though  a  power 
of  attorney  to  collect  debts,  given  under  such  circum- 
stances, might  be  valid,  it  is  generally  conceded  that  a 
power  of  attorney  cannot  be  given,  during  -the  existence 
of  war,  by  a  citizen  of  one  of  the  belligerent  countries 
resident  therein,  to  a  citizen  or  resident  of  the  other; 
for  that  would  be  holding  intercourse  with  the  enemy, 
which  is  forbidden.  Perhaps  it  may  be  assumed  that  an 
agent  ante  helium,  who  continues  to  act  as  such  during 
the  war,  in  the  receipt  of  money  or  property  on  behalf 
of  his  principal,  where  it  is  the  manifest  interest  of  the 
latter  that  he  should  do  so,  as  in  the  collection  of  rents 
and  other  debts,  the  assent  of  the  principal  will  be  pre- 
sumed, unless  the  contrary  be  shown ;  but  that,  where  it 
is  against  his  interest,  or  would  impose  upon  him  some 
new  obligation  or  burden,  his  assent  will  not  be  presumed, 
but  must  be  proved,  either  by  his  subsequent  ratification, 
or  in  some  other  manner. 


TERMINATION  427 

"We  place  our  decision  simply  on  the  ground  that  the 
agency  of  Garland  was  terminated  by  the  breaking  out 
of  the  war,  and  that,  although  by  the  consent  of  the  par- 
ties it  might  have  been  continued  for  the  purpose  of 
receiving  payments  of  premiums  during  the  war,  there  is 
no  proof  that  such  assent  was  given,  either  by  the  de- 
fendant or  by  Garland;  but  that,  on  the  contrary,  the 
proof  is  positive  and  uncontradicted,  that  Garland  de- 
clined to  act  as  agent. 

Question  235:  What  were  the  facts  in  this  case  and  what  did 
the  Court  hold  as  to  the  effect  of  the  war  of  the  agency. 

Sec.  202.   Bankruptcy. 

(Note :  Bankruptcy  discharges  debts  mature  or  immature.  It 
ordinarily  does  not  affect  the  executory  contracts  between  in- 
dividuals which  are  not  in  the  nature  of  indebtedness.) 


DIVISION  C 


SALES 


DIVISION    C 

SALES  OF  PERSONAL  PROPERTY 

(The  outline  adopted  is  that  of  the  Uniform  Sales 
Act,  to  which  reference  is  freely  made  and  which  is 
printed  at  the  end  of  this  Division.) 

Part      IX.  Formation  of  Contract  of  Sale. 

Part        X.  Transfer  of  Property  and  Title. 

Part      XL  Performance  of  the  Contract  of  Sale. 

Part    XII.  Rights  of  Unpaid  Seller  Against  the  Goods. 

Part  XIII.  Actions  for  Breach  of  Contract  of  Sale. 

PART  IX 

FORMATION  OF  CONTRACT 


Chapter  Thirty-five. 
Chapter  Thirty-six. 

Chapter  Thirty-seven. 
Chapter  Thirty-eight. 
Chapter  Thirty-nine. 


Definitions. 

Capacity  of  Parties  and  For- 
malities of  Contract. 
Subject  Matter  of  the  Contract. 
The  Price. 
Conditions  and  Warranties. 


431 


CHAPTER  THIRTY-FIVE 
DEFINITIONS 

§  203.  Sales    and    contracts    to   sell       §  205.  Sales  distinguished  from  bail- 
defined,  ments. 

§  204.  Sales       distinguished       from 
gifts. 

Sec.  203.   Sales  and  Contracts  to  Sell  Defined. 

Case  No.  236.   Uniform  Sales  Act.   Seel. 
(See  page  585,  post.) 

Question  236:  (1.)  Define  a  sale;  how  does  it  differ  from 
a  contract  to  sell?  If  there  is  a  contract  to  sell  and  the  seller 
refuses  to  perform,  has  the  buyer  any  ownership  of  the  goods? 
Can  he  compel  performance?    What  is  his  remedy? 

(2.)  A  writes  to  B  ordering  by  general  description  100 
pianolas  of  a  certain  make  to  be  delivered  in  90  days  on  stated 
terms.  B  duly  accepts  the  offer.  Is  this  a  sale  or  contract  to 
sell? 

Sec.  204.   Sales  Distinguished  from  Gifts. 

Case  No.  237.  Bouvier  's  Law  Dictionary,  tit. ' '  Gift. ' ' 
"A  gift  is  the  act  by  which  the  owner  of  a  thing  vol- 
untarily transfers  the  title  and  possession  of  the  same 
from  himself  to  another  person,  without  any  considera- 
tion. It  differs  from  a  grant,  sale  or  bargain  in  this: 
that  in  each  of  these  cases  there  must  be  a  consideration, 
and  a  gift,  as  the  definition  states,  must  be  without  con- 
sideration.' ' 

432 


DEFINITIONS  433 

Question  237:  A  in  writing  promises  B,  aged  21,  that,  on 
B  's  25th  birthday  he  will  present  him  with  his  watch.  Suppose 
that  on  the  25th  birthday  A  refuses  to  perform.  Has  B  any 
rights  to  the  watch  or  against  A?    Why? 

(2.)  Would  your  answer  be  different  if  A  had  agreed  to 
sell  B  the  watch?    Why? 

(3.)  Suppose  that  when  the  25th  birthday  arrived,  A  had 
said  to  B :  "  The  watch  is  yours ;  I  will  go  to  get  it, ' '  and  had 
then  proceeded  to  the  strong-box  and  had  taken  out  the  watch 
tut,  before  he  could  hand  it  to  B,  had  been  stricken  with 
apoplexy  and  died  without  recovering  consciousness.  Could  B 
claim  the  watch? 

(4.)  Suppose  that  A  had  actually  given  B  the  watch,  would 
B  's  title  be  as  good  as  though  B  had  paid  A  for  it  ? 

Sec.  205.    Sales  Distinguished  from  Bailments. 

Case  No.  238.    Wilson  v.  Finney,  13  Johns.  (N.  Y.)  358. 

Facts:  In  June,  1812,  plaintiff,  Wilson,  delivered  to 
defendant,  Finney,  six  sheep,  in  consideration  whereof 
Finney  agreed  to  return  to  plaintiff,  at  the  end  of  a  year, 
an  equal  number  of  sheep,  of  equal  value.  Finney  neg- 
lected to  deliver  the  sheep  according  to  this  agreement. 
It  appeared  that  four  of  the  sheep  had  been  taken  (right- 
fully or  wrongfully)  from  Finney  by  one  of  Wilson's 
creditors,  as  the  property  of  Wilson.  Wilson  sued  Fin- 
ney for  failing  to  deliver,  the  sheep  according  to  the 
agreement  and  Finney  had  a  judgment  below.  Wilson 
appeals. 

Point  Involved:  The  distinction  between  a  bailment 
and  a  sale. 

Per  Curiam:  "This  judgment  cannot  be  supported. 
There  is  no  color  of  depriving  the  plaintiff  of  a  recovery 
for  the  value  of  two  sheep,  as  there  is  no  pretense  that 
more  than  four  were  taken  under  the  attachment  against 
him.  But  the  plaintiff  was  entitled  to  recover  for  the 
whole  number.  The  property  in  the  sheep,  delivered 
by  the  plaintiff,  was  changed  and  duly  vested  in  the 
defendant.     He  was  under  no  obligation  to  return  the 


434  SALES 

same  sheep,  but  only  those  of  equal  value.    They  were 
at  his  absolute  disposal  and  risk. 
''Judgment  reversed.' ' 

Question  238:  (1.)  Was  there  a  sale  of  the  sheep  in  this 
case  ?    Why  ? 

(2.)  Suppose  the  agreement  had  been  that  Finney  should 
return  the  same  sheep,  and  the  sheep  had  been  taken  by  Wilson 's 
creditors  or  had  died  without  Finney's  fault.  Would  your 
answer  be  different?    Why? 

Case  No.  239.   Austin  v.  Seligman,  18  Fed.  519. 

Facts:  Plaintiff  delivered  to  Kempt  &  Co.  certain 
jewelers '  sweepings,  of  the  value  of  $4,292,  to  be  refined 
and  agreed  to  pay  for  the  refining  $320,  Kempt  &  Co.. 
after  the  refining,  to  deliver  to  plaintiff  the  product 
thereof  or  account  for  their  value.  Kempt  &  Co.  did 
neither.  The  plaintiff  now  sues  defendant  as  successor 
of  Kempt  &  Co.,  alleging  that  they  assumed  the  obliga- 
tion. The  question  arises  under  the  pleadings  in  this 
case  whether  this  transaction  was  a  bailment  or  sale, 
on  the  facts  stated. 

Point  Involved:  Whether  an  agreement  to  return  the 
same  goods  received,  or  at  the  receiver's  option  to  ac- 
count for  their  value  is  a  bailment  or  sale. 

Wallace,  J.:  "*  *  *  If  the  delivery  of  the  sweep- 
ings was  a  bailment,  trover  is  an  appropriate  remedy, 
because  the  title  to  the  property  remained  in  the  plain- 
tiff, and  a  demand  and  a  refusal  to  return  it  to  him  by  the 
defendants  is  sufficient  evidence  of  a  conversion,  whether 
defendants  were  innocent  purchasers  or  otherwise.  But 
the  rule  is  well  settled  that  when,  by  the  terms  of  the 
contract  under  which  property  is  delivered  by  an  owner 
to  another,  the  latter  is  under  no  obligation  to  return 
the  specific  property  either  in  its  identical  form  or  in 
some  other  form  in  which  its  identity  may  be  traced, 
but  is  authorized  to  substitute  something  else  in  its  place, 
either  money  or  some  other  equivalent,  the  transaction 


DEFINITIONS  435 

is  not  a  bailment,  but  is  a  sale  or  exchange.  Here,  the 
agreement  was  that  Kempt  &  Co.  should  return  the  re- 
fined product  of  the  sweepings  or  account  for  their 
value  thereof,  less  the  price  for  refining.  They  had  an 
option  which  was  inconsistent  with  the  character  of  a 
bailment.  Hurd  v.  West,  7  Cow.  752 ;  Smith  v.  Clarke,  21 
Wend.  83;  Foster  v.  Pettibone,  7  N.  Y.  433;  Buffum  v. 
Merry,  3  Mason  478 ;  Chase  v.  Washburn,  1  Ohio  St.  244 ; 
Ewing  v.  French,  1  Blackf.  153.     Schouler,  Bailm.  5. 


Question  239:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision. 

(2.)  A  delivers  to  B  a  large  lot  of  leather  to  be  made  into 
shoes,  A  to  have  shoes  from  the  same  leather.  After  the  goods 
are  delivered  to  B,  in  whom  is  the  title  to  the  leather  ?  B  makes 
up  the  leather  into  shoes,  and  refuses  to  deliver  the  shoes  to  A. 
Can  A  (on  paying  B's  proper  charges)  obtain  the  shoes?    Why? 

(3.)  Same  case  except  B  agrees  to  deliver  shoes  out  of  the 
same  grade  of  leather.  What  is  your  answer?  What  would  be 
A's  remedy? 

Case  No.  240.    In  re  Columbus  Buggy  Co.,  143  Fed.  859. 

Facts:  The  Washburn-Lyle  Implement  Co.  was  ad- 
judged a  bankrupt,  and  certain  goods  were  found  in  its 
possession  which  it  had  obtained  under  a  contract  with 
the  Columbus  Buggy  Co.  The  trustee  in  bankruptcy 
took  possession  of  these  goods,  claiming  them  as  assets 
of  the  bankrupt's  estate,  and  the  Columbus  Buggy  Co. 
claims  them  as  belonging  to  it.  The  trustee's  position 
is  that  the  goods  were  sold  to  the  now  bankrupt  under  a 
conditional  sale  which  under  the  Oklahoma  laws  is  not 
good  as  against  creditors  unless  recorded.  The  Colum- 
bus Buggy  Co.  claims  that  the  bankrupt  holds  the  goods 
as  mere  agent  or  consignee  of  the  Columbus  Buggy  Co. 
and  that  title  to  said  goods  never  passed  conditionally  or 
otherwise,  and  therefore  the  transaction  was  not  subject 
to  the  conditional  sales  recording  law.  The  material 
terms  of  the  contract  were  that  the  goods  should  be  se- 
lected from  those  of  the  Columbus  Co.  by  the  Washburn 


436  SALES 

Co.  and  should  be  shipped  and  billed  to  it  as  agent  by 
the  Columbus  Co.  at  the  latter 's  wholesale  prices,  that 
the  Washburn  Co.  might  sell  the  goods  at  such  prices 
as  it  saw  fit  and  that  it  would  pay  to  the  Columbus 
Co.  the  wholesale  prices  less  5%  discount  for  the  goods 
if  sold  in  each  month  by  the  10th  day  of  the  succeed- 
ing month,  that  it  would  keep  the  goods  insured  for  bene- 
fit of  the  Columbus  Co.  and  would  bear  all  expenses  of 
freight,  storage  and  hauling,  that  the  contract  should 
continue  in  force  one  year  and  that  unless  it  was  re- 
newed, the  Washburn  Co.  would,  at  its  expiration  return 
that  portion  of  the  goods  unsold  and  the  Columbus  Co. 
would  repay  the  freight  which  had  been  paid  upon  this 
portion  and  that  all  goods  should  be  on  consignment  and 
the  title  should  remain  in  the  Columbus  Co.  and  subject 
to  its  order  until  they  were  sold  and  paid  for  in  cash. 

Sanborn,  Circuit  Judge  (after  reciting  the  facts) : 
"A  conditional  sale  is  one  in  which  the  vesting  of  the 
title  in  the  purchaser  is  subject  to  a  condition  precedent, 
or  in  which  its  revesting  in  the  seller  is  subject  to  a  fail- 
ure of  the  buyer  to  comply  with  a  condition  subsequent. 

"An  agreed  price,  a  vendor,  a  vendee,  an  agreement 
of  the  former  to  sell  for  the  agreed  price  and  an  agree- 
ment of  the  latter  to  buy  for  and  to  pay  the  agreed 
price  are  essential  elements  of  a  contract  of  sale.  The 
contract  involved  in  this  case  has  none  of  these  charac- 
teristics. The  power  to  require  the  restoration  of  the 
subject  of  the  agreement  is  an  indelible  incident  of  a 
contract  of  bailment.  South  Australian  Ins.  Co.  v.  Ran- 
dell,  L.  R.  3  P.  C.  101, 108;  2  Kent's  Com.  x,  589;  Powder 
Co.  v.  Burkhardt,  97  U.  S.  116,  24  L.  Ed.  973;  Sturm  v. 
Boker,  150  U.  S.  312, 14  Sup.  Ct.  99,  37  L.  Ed.  1093.  This 
contract  contains  a  plain  stipulation  that  the  goods  are 
at  all  times  subject  to  the  order  of  the  Columbus  com- 
pany until  they  are  sold  and  that  at  the  expiration  of 
the  term  of  the  contract  the  Washburn  company  will 
return  the  goods  which  remain  unsold.  It  was  there- 
fore a  contract  of  bailment  for  sale  and  it  was  not  sub- 


DEFINITIONS  437 

ject  to  the  statute  of.  Oklahoma  regarding  conditional 
sales.  One  of  the  most  striking  and  familiar  illustra- 
tions of  its  character  is  given  by  Chief  Justice  Gibson  in 
McCullough  v.  Porter,  4  Watts  &  S.  (Pa.)  177,  39  Am. 
Dec.  68,  where  he  says : 

"  'Were  I  to  put  my  horse  in  the  custody  of  a  friend, 
to  be  sold  for  a  designated  sum,  with  permission  to  re- 
tain whatever  could  be  got  beyond  it,  it  would  not  be 
suspected  that  I  had  ceased  to  own  him  in  the  mean- 
time, or  that  my  friend  would  not  be  bound  to  return 
him,  even  without  a  stipulation,  should  he  have  failed 
to  obtain  the  prescribed  price. ' 

"A  contract  between  a  furnisher  of  goods  and  the 
receiver  that  the  latter  may  sell  them  at  such  prices  as 
he  chooses,  that  he  will  account  and  pay  for  the  goods 
sold  at  agreed  prices,  that  he  will  bear  the  expense  of 
insurance,  freight,  storage  and  handling  and  that  he 
will  hold  the  unsold  merchandise  subject  to  the  order  of 
the  furnisher  discloses  a  bailment  for  sale  and  does  not 
evidence  a  conditional  sale.  It  contains  no  agreement  of 
the  receiver  to  pay  any  agreed  price  for  the  goods.  It 
is  not,  therefore,  affected  by  a  statute  which  renders  un- 
recorded contracts  for  conditional  sales  voidable  by  cred- 
itors and  purchasers.  The  fact  that  such  a  contract 
provides  that  the  receiver  of  the  goods  may  fix  the  sell- 
ing prices  and  may  retain  the  difference  between  the 
agreed  prices  of  the  accounting  and  the  selling  prices 
to  recompense  him  for  insurance,  storage,  commission 
and  expenses  does  not  constitute  the  contract  an  agree- 
ment of  sale.  It  still  lacks  ^he  obligation  of  the  receiver 
to  pay  a  purchase  price  for  the  goods  and  the  obligation 
of  the  furnisher  to  transfer  the  title  to  him  for  that  price. 
Sturm  v.  Boker,  150  U.  S.  312,  14  Sup.  Ct.  99,  37  L.  Ed. 
1093;  John  Deere  Plow  Co.  v.  McDavid  (C.  C.  A.—)  137 
Fed.  802;  Metropolitan  Nat.  Bank  v.  Benedict  Co.,  20 
C.  C.  A.  377,  380,  74  Fed.  12, 185;  In  re  Gait,  56  C.  C.  A. 
470,  473,  120  Fed.  64,  67;  Union  Stock  Yards,  etc.,  Co.  v. 
Western  Land,  etc.,  Co.,  7  C.  C.  A.  660,  664,  59  Fed.  49, 
53;  Keystone  Watchcase  Co.  v.  Fourth  National  Bank, 


438  SALES 

194  Pa.  535,  45  Atl.  328;  In  re  Flanders,  67  C.  C.  A.  484, 
134  Fed.  560;  Martin  v.  Stratton- White  Co.,  1  Ind.  T. 
394,  37  S.  W.  833;  National  Bank  v.  Goodyear,  90  Ga. 
711,  726,  16  S.  E.  962;  Barnes  Safe  &  Lock  Co.,  v.  Bloch 
Bros.  Tobacco  Co.,  38  W.  Va.  158,  164,  18  S.  E.  482,  22 
L.  R.  A.  850,  45  Am.  St.  Rep.  846;  National  Cordage  Co. 
v.  Sims,  44  Neb.  148,  153,  62  N.  W.  514;  Rosencranz  & 
Weber  Co.  v.  Hanchett,  30  111.  App.  283,  286;  Harris  v. 
Coe,  71  Conn.  157,  41  Atl.  552,  554;  W.  0.  Dean  Co.  v. 
Lombard,  61  111.  App.  94,  97;  Norton  &  Co.  v.  Melick,  97 
Iowa,  564,  566,  66  N.  W.  780;  Lenz  v.  Harrison,  148  111. 
598,36N.E.  567,  569." 

Question  240:  (1.)  Why  in  this  case  was  it  material  to  deter- 
mine whether  this  was  a  conditional  sale  or  a  bailment  ? 

(2.)     What  did  the  court  decide  the  transaction  was?    Why? 

Case  No.  241.    Lenz  v.  Harrison,  148  111.  598. 

Facts:  Harrison  sent  wagons  to  Harrington  under 
the  following  agreement: 

"First — The  party  of  the  first  part  has  appointed 
and  does  appoint  the  party  of  the  second  part  to  act  as 
his  agent  for  the  sale  of  his  wagons  in  Henry,  Illinois. 

1  ■  Second — The  party  of  the  second  part  hereby  under- 
takes and  accepts  the  said  agency,  and  agrees  to  the  fol- 
lowing conditions,  viz. :  Will  pay  freight  charges,  local 
and  general  taxes  on  the  wagons,  have  them  properly 
housed  and  under  cover,  and  will  make  good  any  loss  or 
damage  by  fire ;  will  pay  all  expenses  whatever ;  will  sell 
to  no  person  or  firm  on  credit  whatever,  except  such  as 
is  of  undoubted  solvency  and  financially  responsible,  and 
on  all  time  sales  which  shall  not  exceed  twelve  months, 
will  take  notes  on  blanks  as  enclosed,  with  interest  at 
the  rate  of  seven  per  cent,  per  annum  from  the  date  of 
sale;  will  endorse  all  notes,  guaranteeing  their  prompt 
payment  when  and  where  due ;  will  so  conduct  the  busi- 
ness that  the  time  of  final  payment  in  Grand  Rapids  shall 
not  exceed  twelve  months  from  date  of  shipment;  will 
transmit  to  the  office  of  the  party  of  the  first  part  the 


DEFINITIONS  439 

proceeds  of  each  cash  sale,  or  part  cash  sale,  on  the  day 
the  sale  is  made  or  by  first  mail  thereafter ;  and  further, 
on  the  last  day  of  every  month  will  make  out  an  account 
of  sales  for  the  current  month,  and  transmit  the  same, 
together  with  all  notes,  to  the  office  of  the  party  of  the 
first  part,  and  at  any  time  after  twelve  months  from  date 
of  shipment,  to  give  his  own  note  for  balance  of  consign- 
ment unpaid,  on  four  months,  with  interest  at  seven  per 
cent,  from  date  last  above  mentioned,  if  so  required  by 
party  of  the  first  part,  but  nothing  herein  shall  be  con- 
strued as  amounting  to  a  positive  sale  without  said  re- 
quirements, and  that  during  the  continuance  of  this  con- 
tract they  will  sell  no  wagons  other  than 

"Third — It  is  further  understood  and  agreed  that  the 
party  of  the  first  part  will  invoice  all  wagons  to  the  party 
of  the  second  part  at  the  prices  specified  on  the  back  of 
this  agreement  and  that  on  final  settlement  of  each  con- 
signment, all  sums  over  and  above  such  specified  prices 
for  which  the  party  of  the  second  part  may  sell  the 
wagons,  shall  be  allowed  to  the  party  of  the  second  part 
as  full  commission  and  other  charges  more  especially 
enumerated  in  clause  two  of  this  agreement.' ' 

A  judgment  having  been  obtained  against  Harrington 
in  favor  of  Martin  &  Co.,  Lenz,  the  sheriff,  seized  the 
goods  in  question  as  the  goods  of  Harrington  and  this 
suit  is  brought  against  the  sheriff  by  Harrison  to  re- 
cover the  goods. 

Point  Involved :  Whether  the  agreement  set  out  was  an 
agreement  of  bailment  or  conditional  sale. 

Craig,  J.:  "As  we  understand  the  contract,  when  re- 
viewed in  all  its  parts,  the  wagons  were  shipped  to  Har- 
rington to  be  sold  by  him  as  the  agent  of  Harrison. 
Harrington  did  not  agree  to  purchase  the  property,  nor 
did  Harrison  agree  to  sell  to  him.  The  price  of  the  wag- 
ons was  specified  on  the  back  of  the  contract,  and  Har- 
rington was  clothed  with  authority  to  sell,  and  retain  as 
his  commission  whatever  sum  he  might  receive  over  the 
specified  price.    The  commission  over  the  specified  price 


440  SALES 

was  the  interest,  and  the  only  interest,  Harrington  had  in 
the  property,  and  whether  that  would  amount  to  any- 
thing depended  entirely  upon  the  success  he  might  meet 
with  in  making  sales.  Harrington  never  gave  a  note  or 
any  other  obligation  agreeing  to  pay  for  the  wagons, 
and  by  the  terms  of  the  contract  there  was  no  provision 
under  which  he  could  at  any  time  become  the  owner  of 
the  property. 

"It  will  be  observed  that  in  the  last  part  of  the  second 
clause  of  the  agreement  it  is  provided  that  Harrington 
shall,  'on  the  last  day  of  every  month,  make  out  an 
account  of  sales  for  the  current  month,  and  transmit 
the  same,  together  with  all  the  notes,  to  the  office  of  the 
party  of  the  first  part,  and  at  any  time  after  twelve 
months  from  the  date  of  shipment,  to  give  his  own  note 
for  balance  of  consignment  unpaid,  in  four  months, 
*  *  *  if  so  required  by  party  of  first  part.'  This 
clause  it  is  contended  indicates  that  the  transaction  was 
a  sale.  If  this  clause  was  to  be  considered  alone  there 
might  be  force  in  the  position  of  counsel,  but  in  the  con- 
struction of  a  written  contract  all  the  provisions  are  to 
be  considered  together,  and  from  the  whole  contract 
arrive  at  the  intention  of  the  contracting  parties.  A 
clause  in  the  contract  immediately  preceding  the  one  re- 
lied upon,  provides  that  Harrington  will  so  conduct  the 
business  that  the  time  of  final  payment  in  Grand  Rapids 
shall  not  exceed  twelve  months  from  the  date  of  ship- 
ment. From  this  clause  it  is  manifest  that  Harrison 
wished  to  compel  the  sale  of  a  consignment  of  wagons 
within  one  year  from  the  time  the  wagons  were  placed 
in  the  agent's  hands,  and  the  proceeds  should  be  paid 
over.  Now,  the  clause  holding  Harrington  liable  for  any 
unsold  wagons  after  the  year  expired,  if  Harrison  re- 
quired it,  was  no  doubt  incorporated  into  the  contract 
to  compel  the  agent  to  promptly  sell,  and  report  sales 
within  the  year  from  the  time  he  received  the  wagons. 

"Bastress  v.  Chickering,  130  111.  206,  has  been  cited  as 
an  authority  that  the  transaction  is  a  sale.  There  are 
several  features  of  the  contract  involved  similar  to  the 


DEFINITIONS  441 

contract  in  the  case  cited.  But  there  is  one  marked  dis- 
tinction between  that  case  and  this  one.  These  notes 
were  given  on  receipt  of  the  goods,  and  upon  the  pay- 
ment of  a  note  given  for  any  one  invoice  the  consignees 
were  relieved  of  all  further  liability  as  respected  that 
consignment,  and  the  title  to  the  property  would  vest. 
The  contract  in  this  case  contains  no  such  provision. 
Indeed,  we  find  nothing  in  the  contract,  when  all  its  pro- 
visions are  considered,  which  can  properly  be  construed 
in  such  a  manner  as  to  make  the  transaction  a  sale." 

Question  241:  (1.)  What  did  the  court  decide  the  transac- 
tion in  this  case  constituted  ?    Give  some  of  its  reasons. 

(2.)  "What  in  the  Bastress  case,  was  said  by  the  court  to  dis- 
tinguish it  from  this  case? 

(Note:  This  case  is  an  extreme  case  showing  the  extent  to 
which  some  decisions  uphold  the  contract  even  as  against  creditors 
where  it  seems  that  the  transaction  was,  after  all,  virtually  a 
sale.  The  court  construes  the  contract  as  giving  a  right  in  the 
consignor  to  have  back  the  same  goods  if  they  are  unsold,  and 
therefore  regards  it  as  a  bailment.    Compare  with  next  case.) 

Case  No.  242.  Arbuckle  Bros.  v.  Kirkpatrick,  98  Tenn. 
221,  36  L.  R.  A.  285. 

Facts:  Arbuckle  Bros,  made  a  contract  with  Kirk- 
patrick &  Co.  by  which  they  purported  to  appoint 
Kirkpatrick  &  Co.  their  ' '  special  selling  factor. ' '  It  was 
provided  in  this  agreement  that  the  title  to  the  goods  de- 
livered to  K.  &  Co.  should  remain  in  A.  Bros. ;  that  the 
goods  should  be  billed  to  K.  &  Co.  in  K.  &  Co.  's  name, 
4 'but  only  as  our  factors,  and  according  to  the  laws  re- 
lating to  factors  and  only  at  such  prices  and  at  such 
terms  as  we  may  give  you  from  time  to  time;"  that  K. 
&  Co.  should  guarantee  the  sale  of  each  consignment,  and 
the  payment  thereof,  within  sixty  days  from  its  date 
and  should  assume  all  risk  as  to  the  credit  of  the  parties, 
and  should  make  all  collections  for  goods  sold,  that  K. 
&  Co.  should  remit  the  full  amount  of  each  consignment 
less  commission  by  the  end  of  such  sixty  days  at  the 
price  designated  at  the  time  of  the  consignment,  whether 


442  SALES 

the  whole  of  said  consignment  is  sold  or  not,  that  cer- 
tain discounts  should  be  allowed  on  payments  in  ad- 
vance, that  if  the  full  amount,  less  commissions,  of  any 
consignment  should  not  be  paid,  A.  Bros,  would  draw 
on  K.  &  Co.  and  that  certain  prices  were  to  be  maintained. 
K.  &  Co.  became  insolvent  and  made  an  assignment  for 
benefit  of  creditors.  Arbuckle  Bros,  claim  title  to  all 
accounts  for  coffee  sold,  not  yet  collected,  and  moneys 
held  by  K.  &  Co.  from  accounts  collected.  No  goods  are 
now  on  hand  subject  to  controversy.  The  assignee  of 
K.  &  Co.  claims  that  the  contract  between  A.  Bros,  and 
K.  &  Co.  was  a  contract  by  which  title  to  all  goods  de- 
livered thereunder  passed  on  the  delivery.  <^4-  Bros 
claim  that  K.  &  Co.  were  their  agents  and  mere  bailee! 
and  not  purchasers  of  such  goods. 

Point  Involved:  Whether  under  the  contract  set  forth 
title  passed  to  the  goods  delivered  thereunder  or  whether 
the  sellers  thereby  retained  title,  with  the  consignee  as 
their  agent. 

Wilkes,  J.:  "*  *  *  Without  attempting  to  run  a 
parallel  between  the  present  case  and  those  which  have 
been  cited  and  commented  upon,  we  merely  state  some 
of  the  more  prominent  features  which  we  think  charac- 
terize this  contract  as  one  of  sale,  and  not  of  agency. 
It  will  be  noted  that  under  no  circumstances  were  any 
goods  ever  to  be  returned  to  Arbuckle  Bros.  All  must 
be  paid  for  in  sixty  days,  whether  sold  or  not.  There 
is  no  stipulation  to  buy  at  the  expiration  of  sixty  days, 
but  the  contract  clearly  contemplates  a  payment  with- 
out further  bargain,  when  that  time  arrives,  and  implies 
a  present  sale,  on  a  credit  of  sixty  days.  (( Kirkpatrick  & 
Co.  could  sell  when  and  on  what  time  they~clrose;  but 
no  matter  how  sales  were  made,  the  amount  to  be  paid 
was  fixed  in  advance,  whether  sold  or  not,  whether  col- 
lected or  not.  No  account  of  sales  was  to  be  rendered. 
Arbuckle  Bros,  had  nothing  to  do  with  Kirkpatrick  & 
Co.'s  customers.  They  were  not  in  privity  with  com- 
plainants, and  no  credit  was  given  to  them.    If  cash  was 


DEFINITIONS  443 

taken,  it  was  not  to  be  kept  separate.  If  notes  were 
taken  Arbuckle  Bros,  had  no  concern  in  them.  Kirk- 
patrick  &  Co.  were  to  have  all  advance  in  prices  and 
bear  all  declines.  If  the  goods  were  destroyed  by  fire, 
wind,  or  water,  it  was  the  loss  of  Kirkpatrick  &  Co.,  and 
the  insurance  was  optional,  and  only  designed  to  place 
them  in  position  to  account  for  the  goods.  Whether 
the  goods  were  carted,  or  stored,  or  insured  was  optional 
with  Kirkpatrick  &  Co.,  but,  in  any  event,  they  were  to 
be  credited  therefor.  They  were  allowed  a  sum  for  com- 
missions, whether  they  sold  or  not  and  discount  was 
to  be  allowed  for  quick  payment,  as  is  usual  in  case  of 
sales.  The  course  of  dealing  shows  that  the  proceeds  of  \/ 
sale  were  not  to  be  kept  separate,  but  Kirkpatrick  &  Co. 
remitted  their  check  on  general  account;  and  it  was 
accepted  without  question  or  comment.  This  was  a  vir- 
tual agreement  that  Kirkpatrick  &  Co.  might  use  the 
proceeds  as  they  chose,  ano^  account  for  them  out  of  their. 
general  funds.  These  features  are_all  evidences  of  a  «/ 
sale,jand  cover  every  risk,  obligation/and  duty  that  rests  V/^v 
upon  a  purchaser,  and  cover  every  right  in  handling  the 
goods  that  an  owner  could  have,  except,  simply,  the  price 
was  to  be  sustained.  This  was  evidently  provided  in 
order  to  keep  the  price  uniform — in  all  markets  and 
stifle  competition.  Kirkpatrick  &  Co.  could  sell  in  any 
territory,  in  any  amount,  to  any  purchaser,  on  any  terms, 
for  cash  or  credit,  take  notes  or  make  accounts,  and  dis- 
pose of  the  goods  as  absolutely  and  free  of  limitation  as 
any  owner  could,  except  they  could  not  vary  the  price. 
In  Nutter  v.  Wheeler,  supra,  it  is  said  that  a  stipulation 
that  a  vendee  or  consignee  shall  not  sell  below  a  fixed 
price  is  a  very  common  one,  made  to  prevent  competition, 
and  has  but  little  weight  in  determining  the  question  of 
sale  or  agency,  and  is  consistent  with  either. 

"We  are  of  opinion  that  complainants  cannot  collect 
from  customers  of  Kirkpatrick  &  Co.,  but  must  look 
alone  to  them,  and  not  to  purchasers  from  them ;  and  we 
are  also  of  opinion  that  under  the  peculiar  provisions  of 
this  contract  the  relation  of  complainants  to  Kirkpatrick 


444  SALES 

&  Co.  wgp  ftygj^nf  vendor  tn  vendee^  at  least  as  to  outsid- 
ers, and  persons  to  be  affected  bythe  relation,  no  matter 
what  the  parties  may  have  agreed  or  intended  as  between 
themselves.  The  contract  is  certainly  a  remarkable  one, 
partaking  in  many  of  its  provisions  of  a  contract  of 
agency  and  in  many  others  of  a  sale.  It  is  evidently 
intended  as  either  or  both,  as  might  suit  the  convenience 
or  subserve  the  purposes  of  the  complainants.  It  pur- 
ports to  be  copyrighted;  for  what  reason  is  not  stated, 
but  the  copyright  is  evidently  procured  on  account  of 
the  unusual  and  extraordinary  provisions  of  the  instru- 
ment (if  there  be  a  copyright)  .(ln_cojistruing  such  a 
contract,  whenever  it  affects  the  rights  of  others  it  will 
be  so  construed  as  to  protect  such  rights  and  not  to 
enable  the  complainants  to  carry  out  any  double  purpose. 
In  view  of  its  uncertainly  and  contradictory  provisions, 
the  >court  will  see  that  third  persons  are  not  prejudiced 
by  its  construcHonT^/ 

Question  242:  What  led  the  court  in  this  case  to  describe  the 
transaction  as  a  sale? 

Case  No.  243.   Yockey  v.  Smith,  181  111.  564. 

Facts:  Suit  in  replevin  brought  by  Smith  against 
Yockey  to  recover  possession  of  4,955  bushels  of  corn 
and  211  bushels  of  oats,  which  had  been  stored  by  Smith 
in  the  elevators  of  Robt.  T.  Harrington,  and  which 
Yockey  has  seized  as  sheriff  under  an  execution  against 
Harrington.  Defense  that  the  grain  does  not  belong  to 
Smith  but  to  Harrington  and  is  therefore  rightfully 
seized.  Harrington  was  a  grain  dealer  at  Marseilles, 
Illinois.  He  bought,  shipped  and  sold  grain  on  his  own 
account  and  received  grain  in  store  from  farmers  in  his 
elevators.  Smith  being  the  owner  of  about  3,000  bushels 
of  oats  and  5,000  bushels  of  corn,  hauled  and  stored  it 
in  the  elevators  operated  by  Harrington,  under„an  agree- 
ment that  it  was  to  remain  his  grain,  subject  to  his  order, 
and  he  was  to  pay  a  certain  price  per  bushel  for  storage. 
The  sale  was  mixed  with  grain  of  the  same  quality  be- 
longing to  other  depositors. 


DEFINITIONS  445 

Point  Involved:  Whether  a  deposit  of  grain  in  a  pub- 
lic warehouse  to  be  stored  and  mixed  with  other  grain  of 
like  quantity,  under  an  agreement  that  the  same  or  a 
like  quantity  of  the  same  kind  of  grain  shall  be  held  sub- 
ject to  the  order  of  the  depositor,  is  a  bailment  or  a  sale. 

Mr.  Justice  Craig:  "•  *  *  We  think  it  is  plain 
that  the  proprietors  of  public  warehouses,  such  as  were 
kept  by  Harrington,  do  not  become  debtors  of  the  own- 
ers of  the  grain  stored,  but  on  the  other  hand,  they  are 
custodians,  charged  with  the  duty  to  restore,  in  quantity 
and  quality,  such  grain  as  they  may  receive.  This  rule 
is  demanded  for  the  safety  and  security  of  those  who 
entrust  their  grain  to  the  keeping  of  persons  engaged  in 
the  public  business  of  warehouseman.     *     *     *" 

Question  243:  (1.)  If  grain  is  deposited  with  a  public  ware- 
houseman, to  be  mixed  with  grain  of  like  quality,  the  same 
quantity  of  like  grain  to  remain  at  the  depositor's  order,  in 
whom  is  the  title  of  the  grain  so  stored? 

(Note :  This  rule  applies  only  to  goods  of  a  fungible  character 
(that  is,  goods  made  of  units  indistinguishable  from  the  units 
of  similar  masses)  where  by  custom  the  goods  may  be  mixed 
and  similar  quantities  restored.  Compare  with  cases  in  this 
chapter,  supra.) 


CHAPTER  THIRTY-SIX 

CAPACITY  OF  PARTIES  AND  FORMALITIES  OF 

CONTRACT 

§  206.  Capacity  of  parties.  §  208.  Statute  of  frauds. 

§  207.  Form  of  contract  of  sale. 

Sec.  206.    Capacity  of  Parties. 

Case  No.  244.    Uniform  Sales  Act,  Sec.  2. 

(See  page  585,  post.    See  also  Cases  2  to  14,  supra.) 

Question  244:  Does  the  Uniform  Sales  Act  change  the  general 
law  of  contracts  in  this  respect  ? 

r 

Sec.  207.   Form  of  Contract  of  Sale. 

Case  No.  245.   Uniform  Sales  Act,  Sec.  3. 
(See  page  585,  post.) 

Question  245:    What  form  may  the  contract  of  sale  take? 

Sec.  208.    Statute  of  Frauds. 

Case  No.  246.   Uniform  Sales  Act,  Sec.  4. 

(See  page  585,  post.   See  also  Cases  100  to  109,  supra.) 

Question  246:  In  what  way  does  the  Uniform  Sales  Act 
change  the  effect  of  the  17th  section  of  the  original  statute  of 
frauds  ? 

(Note:  See  Cases  100  to  109  in  Division  I.  The  value  of 
$500,  or  upwards,  as  provided  in  the  Sales  Act,  is  changed  by 
some  of  the  States  which  have  adopted  the  Act.) 

446 


CHAPTER   THIRTY-SEVEN 
SUBJECT  MATTER  OF  THE  CONTRACT 

§  209.  Existing  and  future  goods.  §  212.  What  is  included  within  the 

§  210.  Undivided  shares.  subject  matter. 

§  211.  Destruction     of    goods     con- 
tracted to  be  sold. 

Sec.  209.   Existing  and  Future  Goods. 

Case  No.  247.    Uniform  Sales  Act,  Sec.  5. 
(See  page  586,  post.) 

Qmstian  247:  (1.)  What  are  "future  goods"  within  the 
meaning  of  the  Sales  Act?  May  they  be  the  subject  matter  of 
a  contract  to  sell?  Does  the  act  provide  that  they  may  be  the 
subject  matter  of  a  salef 

(2.)  May  one,  by  the  provisions  of  the  Sales  Act,  contract 
to  sell  goods  whose  acquisition  depends  upon  a  contingency  ? 

(3.)  A  delivers  B  a  bill  of  sale  purporting  to  sell  goods  not 
yet  owned  by  A.    What  is  the  legal  effect  of  this  instrument? 

Case  No.  248.    Forsyth  Mfg.  Co.  v.  Castlen,  112  Ga.  199. 

Facts:  Set  forth  as  Case  No.  Ill,  supra.  In  addition 
to  the  point  made  with  respect  to  parol  evidence,  it  was 
contended  that  the  contract  was  illegal  as  a  sale  of  future 
goods.  The  agreement  in  this  case  provided  for  a  future 
delivery  by  the  purchaser,  and  a  payment  by  the  seller. 
The  words  sell,  or  sale  or  contract  to  sell  were  not  used. 

Point  Involved:  Whether  a  contract  to  sell  goods  yet 
to  be  acquired  by  the  seller  is  valid. 


447 


448  SALES 

Cobb,  J.:    "•     *     * 

"The  right  of  a  person  to  enter  into  a  contract  to  de- 
liver property  not  in  his  possession  relying  upon  making 
a  future  purchase  in  time  to  fulfil  his  undertaking  was 
doubted  by  Lord  Tenterden  (then  Chief  Justice  Abbott) 
in  Lorymer  v.  Smith,  8  E.  C.  L.  1,  where  he  took  occasion 
to  say  that  it  was  a  mode  of  dealing  not  to  be  encouraged. 
*  *  *  The  dictum  of  Lord  Tenterden  [was]  declared 
to  be  unsupported  by  authority  and  unsound  in  principle 
[in  Hibblewhite  v.  M'Morine,  5M.&W.  462].  *  *  * 
This  rule  has  been  generally  recognized  by  the  American 
courts.  Mr.  Tiedeman  says  that  'It  may  be  stated,  as  the 
American  rule,  that  bona  fide  contracts  for  future  deliv- 
ery of  goods  are  not  invalid  because  at  the  time  of  the  sale 
the  vendor  has  not  in  his  actual  or  potential  possession  the 
goods  which  he  has  agreed  to  sell. '  Tied.  Sales,  sec.  302,  p. 
486.  'A  person  may  make  a  contract  for  the  sale  of  per- 
sonal property  for  future  delivery  which  is  not  his  at  the 
time.  Merchants  and  traders  often  do  this.  A  contract  for 
the  sale  of  personal  property  which  the  vendor  does  not 
own  or  possess,  but  expects  to  obtain  by  purchase  or  oth- 
erwise, is  binding  if  an  actual  transfer  of  property  is  con- 
templated.' Beach,  Mod.  Law  of  Con.,  sec.  1468.  *  *  * 
'A  contract  for  the  future  delivery  of  goods  is  not  a 
wagering  contract,  when  actual  delivery  of  the  goods  is 
contemplated   by   either   one    or   both    of   the   parties. 

Question  248:  What  did  the  Court  state  in  respect  to  con- 
tracts to  sell  goods  not  yet  in  existence,  or  yet  to  be  acquired 
by  the  seller?    When,  if  ever,  would  such  sales  be  illegal? 

Case  No.  249.    Low  v.  Pew,  108  Mass.  347. 

Facts:  Alfred  Low  &  Co.  bring  replevin  proceedings 
to  recover  a  lot  of  flitched  halibut  from  the  assignees  in 
bankruptcy  of  John  Low  &  Son.  On  April  17, 1869,  John 
Low  &  Son  being  about  to  sail  with  the  schooner  Florence 
Eeed  on  a  fishing  expedition,  received  $1,500  from  Alfred 
Low  &  Co.  and  gave  back  a  writing  by  which  they  stated 


SUBJECT  MATTER  449 

they  did  thereby  "sell,  assign  and  set  over"  to  Alfred 
Low  &  Co.  all  the  halibut  that  might  be  caught  on  the  voy- 
age, to  be  delivered  to  Alfred  Low  &  Co.  as  soon  as  said 
schooner  arrived  at  the  port  of  Gloucester.  In  July,  1869, 
proceedings  in  bankruptcy  were  begun  in  U.  S.  District 
Court  against  John  Low  &  Son,  and  they  were  adjudi- 
cated bankrupt  August  6,  and  on  August  20  the  defend- 
ants in  these  replevin  proceedings  were  appointed  as- 
signees and  the  deed  of  assignment  executed  to  them. 
On  August  14,  the  Florence  Reed  arrived  home,  and  on 
August  16,  the  U.  S.  marshal  took  possession  of  the  vessel 
and  cargo,  and  turned  the  same  over  to  defendants  on 
their  appointment  as  such  assignees. 

Point  Involved:  Whether  the  writing  by  which  the 
voyagers  purported  to  sell  fish  to  be  caught  on  the  voy- 
age operated  to  transfer  a  title  to  the  fish  as  caught  that 
defeated  a  subsequent  assignment  in  bankruptcy  made 
before  any  of  the  fish  were  delivered  under  such  writing. 

Mortost,  J. :  * '  *  *  *  The  schooner  which  contained 
the  halibut  in  suit  arrived  in  Gloucester  August  14,  1869, 
which  was  after  the  decree  of  bankruptcy.  If  there  had 
been  a  sale  and  delivery  to  the  plaintiffs  of  the  property 
replevied,  it  would  have  been  invalid.  The  plaintiffs 
therefore  show  no  title  to  the  halibut  replevied,  unless  the 
effect  of  the  contract  of  April  17,  1869,  was  to  vest  in 
them  the  property  in  the  halibut  before  the  bankruptcy. 
It  seems  to  us  clear,  as  claimed  by  both  parties,  that  this 
was  a  contract  of  sale  and  not  a  mere  executory  agree- 
ment to  sell  at  some  future  day.  The  plaintiffs  cannot 
maintain  their  suit  upon  any  other  instruction,  because 
if  there  is  an  executory  agreement  to  sell,  the  property 
in  the  halibut  remained  in  the  bankrupts,  and,  there  being 
no  delivery  before  the  bankruptcy,  passed  to  the  as- 
signees. The  question  in  the  case  therefore  is  whether  a 
sale  of  halibut  afterwards  to  be  caught  is  valid,  so  as 
to  pass  to  the  purchaser  the  property  in  them  when 
bought. 


450  SALES 

"It  is  an  elementary  principal  of  the  law  of  sales,  that 
a  man  cannot  grant  personal  property  in  which  he  has 
no  interest  or  title.  To  be  able  to  sell  property,  he  must 
have  a  vested  right  in  it  at  the  time  of  the  sale.    *     *     * 

"It  is  equally  well  settled  that  it  is  sufficient  if  the  seller 
has  a  potential  interest  in  the  thing  sold.  But  a  mere 
possibility  or  expectancy  of  acquiring  property,  not 
coupled  with  any  interest,  does  not  constitute  a  potential 
interest  in  it,  within  the  meaning  of  this  rule.  The  seller 
must  have  a  present  interest  in  the  property  of  which 
the  thing  sold  is  the  product,  growth  or  increase.  Having 
such  interest,  the  right  to  the  thing  sold  when  it  shall 
come  into  existence,  is  a  present  vested  right  and  the  sale 
of  it  is  valid.  Thus  a  man  may  sell  the  wool  to  grow  upon 
his  own  sheep,  but  not  upon  the  sheep  of  another ;  or  the 
crops  to  grow  upon  his  own  land,  but  not  upon  the  land  in 
which  he  has  no  interest.     *     *     * 

"In  the  case  at  bar,  the  sellers,  at  the  time  of  the  sale 
had  no  interest  in  the  thing  sold.  *  *  *  "We  are  of 
opinion  that  they  had  no  actual  or  potential  possession  of, 
or  interest  in,  the  fish ;  *  *  *.  Judgment  for  the  de- 
fendants." 

Question  249:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  the  above  case. 

(Note :  In  some  states  crops  are  deemed  to  have  no  potential 
existence  unless  not  only  the  buyer  owns  the  land,  but  also  the 
crops  are"  planted.  Stowell  v.  Bair,  5  111.  Ap.  104;  Crine  v. 
Tifts,  65  Ga.  644 ;  Brown  v.  Neilson,  61  Nebr.  765. 

The  student  must  not  get  the  impression  that  if  goods  have 
potential  or  actual  existence,  a  contract  for  their  sale  is  neces- 
sarily a  sale.  In  the  vast  majority  of  actual  cases  it  is  merely 
a  contract  to  sell  in  cases  of  potential  existence.  But  these 
cases  hold  that  it  is  possible  by  apt  words  to  actually  sell  goods 
which  have  only  potential  existence  so  that  on  coming  into  being 
they  at  once,  without  further  act,  belong  to  the  purchaser.  Dis- 
cussing the  possible  complications  arising  from  such  a  doctrine, 
Professor  Williston  (Sales,  page  165)  says:  "For  these  reasons 
it  is  probable  that  the  doctrine  would  not  be  carried  to  its  logical 
limit  in  many  jurisdictions.") 


SUBJECT  MATTER  451 

Sec.  210.   Undivided  Shares. 

Case  No.  250.    Uniform  Sales  Act,  Sec.  6. 
(See  page  586,  post.) 

Question  250:     (1.)     Referring  to  the  first  paragraph  of  the 
above  quotation,  state  the  law  as  therein  given. 
(2.)     See  the  note  following: 

(Note:  The  first  paragraph  of  the  above  quotation  may  be 
thus  exemplified:  A  owning  an  undivided  %  interest  in  20 
cords  of  wood  may,  while  the  interest  is  still  undivided,  transfer 
the  same  to  B,  who  will  then  own  an  undivided  interest  in  com- 
mon with  the  others  with  whom  A  owned  the  interest.  Whether 
A  intended  to  sell  or  to  contract  to  sell  depends  on  the  language 
of  his  agreement. 

In  the  2nd  paragraph  another  class  of  cases  is  referred  to. 
Thus  A  owns  a  mass  of  200  bushels  of  wheat.  He  purports  to 
sell  to  B  a  one-third  interest.  The  English  cases  and  one  line 
of  American  cases  hold  that  B  cannot  take  title  until  the  one- 
third  is  identified  as  his  share.  This  is  the  law  everywhere  if  the 
goods  are  not  fungible  (there  being  no  intention  manifest  ac- 
tually to  make  the  parties  owners  in  common  of  the  whole  mass. ) 
But  in  the  case  of  fungible  goods  the  Uniform  Sales  Act  adopts 
the  rule  of  one  line  of  American  cases,  holding  that  if  there  is 
manifest  an  intention  to  transfer  present  ownership,  the  title 
may  immediately  pass,  notwithstanding  identification  of  any 
particular  part  of  the  mass  is  not  made. 

See  the  cases  under  Sec.  226,  post.) 

Sec.  211.    Destruction  of  Goods  Contracted  to  Be  Sold. 

Case  No.  251.    Uniform  Sales  Act,  Sec.  8. 
(See  page  586,  post.) 

Question  251:  (1.)  A  contracts  to  sell  B  500  reaping 
machines.  A  has  on  hand  1,000  machines  out  of  which  he  ex- 
pects to  fulfill  his  contract  with  B,  but  B  has  no  right  to  demand 
any  specific  machines.  The  entire  1,000  machines  are  destroyed 
by  fire.     Is  the  contract  avoided?    Why* 

Sec.  212.    What  Is  Included  Within  the  Subject  Matter? 

Case  No.  252.  Newberry  v.  The  Fashion,  1  Newberry, 
67jFed.  Cas.  10,143. 


452  SALES 

Facts:  Suit  to  recover  the  value  of  an  ash  pan  taken 
from  the  dock  and  put  into  a  steamboat.  The  former 
owner  of  The  Fashion,  in  1854,  procured  this  new  ash  pan, 
the  old  one  being  worn  out,  making  the  vessel  unsafe. 
This  ash  pan  was  delivered  for  The  Fashion  at  the  dock 
of  Oliver  Newberry  and  there  remained  during  the  winter 
of  1854-5,  the  navigation  being  closed  and  The  Fashion 
being  in  dock  for  the  winter.  This  new  pan  fitted  the 
vessel,  and  the  old  pan  was  unfit  for  anything  except  sale 
as  old  iron.  Newberry  bought  The  Fashion  under  a  bill 
of  sale,  transferring  the  boat,  "with  her  engine,  tackle, 
apparel,  furniture  and  appurtenances. ' '  He  then  sold  by 
similar  bill  of  sale  to  the  present  respondent.  At  the  time 
of  this  sale  the  pan  was  on  the  dock,  and  was  not  expressly 
included.  The  engineer  of  The  Fashion  took  possession 
of  it. 

Point  Involved:  What  will  pass  with  a  sale  as  ap- 
purtenant to  the  property  sold. 

Wilkins,  District  Judge  :  "  *  *  *  The  bill  of  sale 
controls  the  question  as  to  the  intention  of  the  parties. 
It  is  true  that  Oliver  Newberry  bought  the  vessel  without 
a  knowledge  of  the  fact  whether  or  not  a  new  ash  pan  was 
necessary  and  had  been  procured;  but  his  purchase  em- 
braced all  that  properly  appertaining  to  the  vessel,  her 
tackle,  her  fixtures,  and  her  apparel ;  and  such  was  clearly 
the  intention  of  the  vendor  and  vendee  when  they  executed 
the  bill  of  sale.  Had  Oliver  Newberry  remained  the 
owner  and  fitted  out  the  vessel  in  the  spring,  there  can 
be  no  question  but  what  he  would  have  claimed  the  ash 
pan  as  an  appurtenance  embraced  in  the  bill  of  sale — 
and  rightfully  too — and  his  sale  to  respondents  passed 
all  his  rights. 

Question  252:  State  the  facts,  point  involved  and  Court's 
decision  in  the  above  case. 


CHAPTER   THIRTY-EIGHT 
THE  PRICE 

§213.  Price  defined.  §215.  Price   at  valuation  by  third 

§  214.  How    price    may    be    deter-  person, 

mined. 

Sec.  213.    Price  Defined. 

Case  No.  254.    Uniform  Sales  Act,  Sec.  9. 
(See  page  587,  post.) 

Question  254:  Must  the  price  be  expressly  stated?  In  what 
ways  may  it  be  left  to  be  determined  ? 

Sec.  214.    How  Price  May  Be  Determined. 

Case  No.  255.  Phifer  v.  Erwin,  100  N.  C.  59. 

Point  Involved:  Whether  the  price  in  a  contract  of 
sale  may  by  agreement  be  left  to  be  fixed  by  some  event 
or  contingency. 

Smith,  C.J. :    "#     *     * 

"The  appellants'  counsel  insists  that,  assuming  the 
parties  intended  a  salejHt  was  ineffectual  to  pass  the 
property  in  the  goods,  by  reason  of  the  want  of  a  fixed 
and  agreed  price.  Such  was  the  rule  of  the  civil  law,  and 
Mr.  Justice  Story,  who  was  most  learned  in  that  system 
of  jurisprudence,  and  an  admirer  of  it,  as  his  valuable 
works  all  show,  in  the  copious  illustrations  drawn  from 
that  source,  says:  'It  seems  to  be  of  the  very  essence  of 
a  sale  that  there  should  be  a  fixed  price  for  the  purchase. ' 
Flagg  v.  Mann,  2  Sum.  R.,  538. 

453 


454  SALES 

"But  the  rule,  established  by  repeated  adjudications,  is 
not  so  rigorous,  and  the  price  may  be  left  to  be  fixed  aft- 
erwards, by  reference  to  market  value,  or  by  a  designated 
person,  or  in  any  other  way  in  which  it  may  be  ascer- 
tained with  certainty,  and  then  the  sale  is  effectual,  and 
the  price  determined ;  and  especially  is  this  so,  when  the 
thing  is  delivered  to  the  purchaser.  If  nothing  is  said  at 
the  sale  and  delivery,  the  sum  to  be  paid  is  what  the  goods 
are  reasonably  worth.  2  Benj.  Sales,  102,  4  Am.  Ed.,  in 
two  volumes.  It  is  only  necessary  to  refer  to  a  definite 
standard,  that  the  price  may  be  made  certain.  1  Parson 
Cont.,  459. 

1 '  The  only  material  matter  to  give  effect  to  a  sale,  and 
the  transfer  of  title,  is  to  provide  in  the  contract  a  definite 
and  sure  means  of  arriving  at  the  sum  to  be  paid,  and 
when  this  is  ascertained,  it  is  the  same  as  if  it  had  been 
definitely  agreed  upon  at  the  time  of  the  sale,  and  the 
vesting  of  the  property  is  referable  to  that  time. 

"It  is  otherwise,  if  the  price  is  left  open  for  future 
adjustment  between  the  parties,  with  no  agreement, 
binding  on  each,  as  to  how  the  price  is  to  be  ascertained, 
and  what  it  shall  be. ' ' 

Question  255:  (1.)  A  agrees  to  deliver  and  B  agrees  to 
accept  and  pay  for  a  horse  at  a  price  to  be  later  agreed  on.  Is 
there  a  sale? 

(2.)  Suppose  the  horse  was  actually  delivered  under  the 
agreement  and  kept  by  B,  but  no  price  was  ever  agreed  on.  What 
rights  has  A? 

(3.)  A  sale  at  a  price  to  be  determined  by  the  market  price 
on  a  future  day.    Is  there  a  valid  contract? 

(4.)  A  sale  between  A  and  B  at  a  price  to  be  determined  by 
C.    Is  there  a  contract? 

(5.)  A  sale  with  no  price  expressly  agreed  upon  and  no  way 
stated  by  which  it  can  be  fixed.    Is  there  a  contract  ? 

Case  No.  256.  Estey  Organ  Co.  v.  Lehman,  132  Wis. 
144, 11  L.  E.  A.  N.  S.  254. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  Where  there  is  a  mistake  of  price, 
whether  there  is  a  contract.    Whether  receiving  goods 


THE  PRICE  455 

knowing  the  price  which  the  vendor  demands,  there  hav- 
ing been  otherwise  no  agreement  as  to  price,  renders  the 
buyer  liable  to  pay  that  price. 

Kerwin,  J. :    "*     *     * 

"The  purchase  of  the  organ  and  motor  was  made 
by  correspondence,  and  it  is  established  that  no  price 
was  agreed  upon,  nor  time  of  delivery  fixed  upon  in 
such  correspondence.  It  is  also  established  by  the  evi- 
dence that  defendants  expected  to  get  the  organ  for 
$1,750,  while  the  plaintiff  expected  to  get  $2,300  for  it, 
and  understood  it  was  selling  it  for  that  price,  which  was 
the  regular  selling  price.  It  is  therefore  apparent  that 
the  minds  of  the  parties  never  met  upon  the  price  before 
delivery  of  the  organ.  It  is  strenuously  insisted,  how- 
ever, by  counsel  for  appellants,  that  where  no  price  is 
agreed  upon  the  law  will  imply  one.  The  argument  of 
counsel  would  have  great  force  if  there  was  no  misunder- 
standing as  to  price.  But,  where  no  price  is  agreed  upon, 
and  there  is  a  misunderstanding  as  to  price,  one  party  un- 
derstanding it  to  be  one  sum  and  the  other  another,  the 
doctrine  invoked  by  counsel  for  appellants  cannot  apply. 
There  being  a  clear  misunderstanding  as  to  price,  the  con- 
tract of  sale  was  not  complete  until  the  price  was  agreed 
upon ;  and  the  law  could  not  imply  a  price  contrary  to  the 
understanding  of  the  parties.  Harran  v.  Foley,  62  "Wis. 
584,  22  N.  W.  837;  Eupley  v.  Daggett,  74  HI.  351.  We 
think  it  clear  that  the  doctrine  that  the  law  will  imply  the 
parties  intended  a  reasonable  price  where  no  price  is 
agreed  upon  cannot  apply  to  the  case  before  us.  The  or- 
gan ordered  was  one  of  the  style  and  size  that  plaintiff 
sold  for  $2,300.  The  organ  was  shipped  on  January  22, 
1904.  On  January  25th,  the  plaintiff  mailed  a  letter,  in- 
closing an  invoice  of  the  price,  $2,300  for  the  organ,  and 
the  balance  $10X05  for  the  motor,  making  $2,401.05,  the 
amount  sued  for.  The  defendants  received  this  letter 
January  30,  1904,  and  replied  to  it  the  same  day,  stating 
that  the  plaintiff  had  made  a  mistake  as  to  the  amount, 
and  demanding  that  the  bill  be  corrected.    Plaintiff  re- 


456  SALES 

plied  February  4,  1904,  confirming-  the  amount  of  the  in- 
voice. In  the  ordinary  course  of  mail  this  letter  would 
reach  defendants  not  later  than  February  7, 1904.  One  of 
defendants  left  Green  Bay  February  12, 1904,  for  Hough- 
ton, Michigan,  and  took  the  organ  from  the  railroad  com- 
pany at  that  place  and  set  it  up.  The  defendants  having 
received  and  retained  the  property  with  knowledge  of  the 
price  plaintiff  expected  to  receive,  and  without  any  agree- 
ment, express  or  implied,  for  a  different  price,  they  can- 
not escape  payment  of  the  price  stated  in  the  invoice. 
Orme  v.  Cooper,  1  Ind.  App.  449,  27  N.  E.  655 ;  Neidig  v. 
Cole,  13  Neb.  39,  13  N.  W.  18;  Wellauer  v.  Fellows,  48 
"Wis.  105,  4  N.  W.  114.  The  minds  of  the  parties  not  hav- 
ing met  upon  the  price  prior  to  the  time  the  property  was 
received  by  defendants  at  Houghton,  Michigan,  it  was 
their  duty,  when  they  received  it  with  knowledge  of  the 
price,  to  refuse  to  accept  it,  unless  they  were  willing  to 
pay  the  price  stated  in  the  invoice.  Having  taken  the 
property  and  converted  it  to  their  own  use,  they  became 
liable  to  pay  such  price,  which  the  evidence  establishes 
was  the  regular  selling  price,  and  a  reasonable  price. ' ' 

Question  256:  What  was  the  defense  in  this  ease?  Did  it 
prevail?    Why? 

Case  No.  257.  S.  F.  Bowser  &  Co.  v.  Marks,  96  Ark.  113, 
32  L.  R.  A.  new  series,  429. 

Facts:  Suit  to  recover  the  price  of  an  oil  tank  and 
pump.  Marks  had  bought  of  Bowser  &  Co.  another  oil 
tank  and  pump  of  the  same  make  two  years  previous,  at 
which  time  the  price  was  $45.  Since  that  time  the  price 
had  advanced  to  $55.00,  at  which  the  article  was  regularly 
selling.  The  defendant  did  not  know  of  this  advance.  In 
ordering  the  pump  nothing  was  said  about  price.  The 
tank  was  promptly  shipped,  and  a  statement  was  mailed 
showing  the  price  at  $55.00.  Defendant  refused  to  receive 
the  goods  and  reshipped  them  to  the  plaintiff  who  re- 
fused to  receive  them. 

Point  Involved:  Whether  the  parties  are  to  be  deemed 
to  have  agreed  upon  the  price,  where  the  buyer  is  mis- 


THE  PRICE  457 

taken  as  to  price  and  nothing  is  said  about  price,  and 
the  seller  reasonably  assumes  that  the  buyer  intends  to 
pay  the  current  price. 

Fkauenthal,  J. :    "  *     *     * 

"If  the  parties  have  agreed  to  all  the  other  elements  of 
the  sale,  and  have  made  no  reference  to  the  price,  then  the 
law  will  by  implication  fix  the  price,  which  will  be  what 
the  article  is  then  reasonably  worth.  A  contract  not  only 
includes  the  things  said  or  written,  but  also  terms  and 
matters  which,  though  not  actually  expressed,  are  implied 
by  law,  and  these  are  as  binding  as  those  terms  actually 
written  or  spoken.     *     *     * 

"  It  is  urged  by  counsel  for  appellees  that  there  was  a 
mistake  in  the  price  made  by  the  parties,  and  that,  on  this 
account,  the  contract  was  not  assented  to  by  both,  and 
therefore  was  not  effective.  It  is  contended  that  the  ap- 
pellees understood  the  price  to  be  $45,  and  that  appellant 
understood  it  to  be  $55.  It  is  true  that  the  appellees  may 
have  entertained  an  unexpressed  intention  to  pay  only 
$45  for  the  tank  and  pump.  But  an  agreement  is  estab- 
lished by  the  words  used,  and  the  law  imputes  to  the  par- 
ties a  meaning  corresponding  to  those  words.  An  unex- 
pressed state  of  mind  of  one  of  the  parties  cannot  effect 
the  agreement  as  established  by  the  words  that  are  em- 
ployed. In  this  case  there  was  no  dispute  or  disagree- 
ment about  the  price,  and  no  misunderstanding  by  either 
party  thereto.  There  was  simply  no  references  made  to 
the  price.  It  cannot  be  said,  therefore,  that  there  was 
any  mistake  made  as  to  the  price.  The  fact  that  appellees 
had  purchased  the  same  kind  of  article  at  a  certain  price 
in  1906  could  not  determine  the  price  thereof  in  1908.  If 
they  had  intended  to  make  the  offer  of  purchase  at  the 
price  paid  in  1906,  they  should  have  made  an  express  stip- 
ulation in  their  offer  to  that  effect.  Failing  to  name  any 
price,  the  law  implies  that  they  intended  to  pay  for  the 
oil  tank  and  pump  the  price  that  it  was  reasonably  worth ; 
and  as  to  such  an  article  as  this,  that  would  be  the  cur- 


458  SALES 

rent  selling  price  thereof  at  the  time  the  offer  to  purchase 
it  was  accepted. 

"The  Court  therefore  erred  in  its  declarations  of  law. 

"The  judgment  is  reversed,  and  the  cause  remanded 
for  a  new  trial. ' ' 

Question  257:  (1.)  Is  this  case  distinguishable  from  the 
case  immediately  preceding  or  is  it  in  conflict  therewith  on  any 
point  ? 

Sec.  215.   Price  at  a  Valuation  by  Third  Person. 

Case  No.  258.    Uniform  Sales  Act,  Sec.  10. 
(See  page  587,  post.) 

Question  258:  (1.)  Where  the  price  is  left  to  a  valuation 
of  a  third  person,  and  he  does  not  fix  the  price,  what  is  the 
result  ? 

(2.)  Suppose  the  goods  have  been  delivered  to  and  appro- 
priated by  the  buyer. 

(3.)  If  either  party  prevent  the  fixing  of  price  by  such  third 
person,  what  is  the  result?. 


CHAPTER   THIRTY-NINE 
CONDITIONS  AND  WARRANTIES 

A.  Conditions  and  their  effect.  D.  No  warranty  to  sub-purchasers ; 

B.  Express  warranties.  their  rights  in  tort. 

C.  Implied  warranties. 

A.    Conditions  and  Their  Effect. 
Sec.  216.    Conditions  Defined;  Their  Effect. 

Case  No.  259.    Uniform  Sales  Act,  Sec.  11. 

*  *  (1)  Where  the  obligation  of  either  party  to  a  contract 
to  sell  or  a  sale  is  subject  to  any  condition  which  is  not 
performed,  such  party  may  refuse  to  proceed  with  the 
contract  or  sale  or  he  may  waive  performance  of  the  con- 
dition. If  the  other  party  has  promised  that  the  condi- 
tion should  happen  or  be  performed,  such  first-mentioned 
party  may  also  treat  the  non-performance  of  the  condi- 
tion as  a  breach  of  warranty. 

"  (2)  Where  the  property  in  the  goods  has  not  passed, 
the  buyer  may  treat  the  fulfillment  by  the  seller  of  his 
obligation  to  furnish  goods  as  described  and  as  warranted 
expressly  or  by  implication  in  the  contract  to  sell  as  a  con- 
dition of  the  obligation  of  the  buyer  to  perform  his 
promise  to  accept  and  pay  for  the  goods.' ' 

Question  259:  (1.)  What  is  the  effect  of  a  condition  in  a 
contract  to  sell,  or  a  sale? 

(2.)     When  may  a  condition  be  treated  as  a  warranty? 

459 


460  SALES 

B.    Express  Warranties. 

§  217.  Definition    of    express    war-  mation  of  opinion  or  pre- 

ranty.  diction. 

§  218.  The  affirmation  of  fact.  §  220.  The    reliance    by    the    pur- 

§  219.  As   distinguished   from  affir-  chaser. 

Sec.  217.    Definition  of  Express  Warranty. 

Case  No.  260.    Uniform  Sales  Act,  Sec.  12. 

"Any  affirmation  of  fact  or  any  promise  by  the  seller 
relating  to  the  goods  is  an  express  warranty  if  the  natural 
tendency  of  such  affirmation  or  promise  is  to  induce  the 
buyer  to  purchase  the  goods,  and  if  the  buyer  purchases 
the  goods  relying  thereon.  No  affirmation  of  the  value 
of  the  goods  nor  any  statement  purporting  to  be  a  state- 
ment of  the  seller's  opinion  only  shall  be  construed  as  a 
warranty. ' '  # 

Question  260:  Define  an  express  warranty?  What  does  the 
Sales  Act  provide  shall  not  constitute  a  warranty? 

Sec.  218.   The  Affirmation  of  Fact. 

Case  No.  261.    Hobart  v.  Young,  63  Vt.  363. 

Facts:  Hobart  bought  of  Young  "one  pair  of  black 
(Pilot  geldings)  sound  and  kind."  Upon  getting  the 
horses  home  Hobart  discovered  one  of  them  had  a  ring 
bone,  and  he  brings  suit  for  breach  of  warranty. 

Point  Involved:  Whether  a  description  of  an  article 
by  the  seller  amounts  to  an  affirmation  of  fact  constitut- 
ing a  warranty.  Whether  the  statement  that  a  horse  is 
sound  is  a  statement  of  fact  or  of  opinion. 

Rowell,  J.:    "•     *     * 

"An  important  question  is,  whether  the  words,  'sound 
and  kind,'  contained  in  the  bill  of  sale,  constitute  an  ex- 
press warranty  as  matter  of  law. 

"The  law  of  warranty  has  undergone  much  change 
since  Chandelor  v.  Lopus,  Cro.  Jac.  4,  decided  in  the  Ex- 


EXPRESS  WARRANTIES  461 

chequer  Chamber  in  1803.  It  was  there  held  that  an 
affirmation  that  the  thing  sold  was  a  bezoar-stone  was  no 
warranty;  for  it  is  said,  every  one  in  selling  his  wares  will 
affirm  that  they  are  good,  or  that  the  horse  he  sells  is 
sound,  yet,  if  he  does  not  warrant  them  to  be  so,  it  is  no 
cause  of  action. 

"But  latterly  courts  have  manifested  a  strong  disposi- 
tion to  construe  liberally  in  favor  of  the  purchaser  what 
the  seller  affirms  about  the  kind  and  quality  of  his  goods, 
and  have  been  disposed  to  treat  such  affirmations  as  war- 
ranties when  the  language  will  bear  that  construction,  and 
it  is  fairly  inferable  that  the  purchaser  so  understood  it. 
Stone  v.  Denny,  4  Met.  155;  Hawkins  v.  Pemberton,  51 
N.  Y.  198.  And  now  any  affirmation  as  to  the  kind  or 
quality  of  the  thing  sold,  not  uttered  as  matter  of  com- 
mendation, opinion,  nor  belief,  made  by  the  seller  pend- 
ing the  treaty  of  sale,  for  the  purpose  of  assuring  the  pur- 
chaser of  the  truth  of  the  affirmation  and  of  inducing  him 
to  make  the  purchase,  if  so  received  and  relied  upon  by 
the  purchaser,  is  deemed  to  be  an  express  warranty.  And 
in  case  of  oral  contracts,  it  is  the  province  of  the  jury  to 
decide,  in  view  of  all  the  circumstances  attending  the 
transaction,  whether  such  a  warranty  exists  or  not. 
Foster  v.  Caldwell's  Estate,  18  Vt.  176;  Bond  v.  Clark, 
35  Vt.  577;  Shippen  v.  Bowen,  122  U.  S.  575. 

"But  when  the  contract  is  in  writing,  it  is  for  the  Court 
to  construe  it,  and  to  decide  whether  it  contains  a  war- 
ranty or  not.  Wason  v.  Eowe,  16  Vt.  525.  And  by  the 
great  weight  of  recent  authority,  positive  statements  in 
instruments  evidencing  contracts  of  sale,  descriptive  of 
the  kind,  or  assertive  of  the  quality  and  condition,  of  the 
thing  sold,  are  treated  as  a  part  of  the  contract  and  re- 
garded as  warranties,  if  the  language  is  reasonably  sus- 
ceptible of  that  construction  and  it  is  fairly  inferable 
that  the  purchaser  understood  and  relied  upon  it  as  such. 

"Thus,  in  Hastings  v.  Lovering,  2  Pick.  214,  the  sale- 
note  described  the  article  as  'prime  quality  winter  sperm 
oil.'  The  plaintiff  declared  in  assumpsit  on  a  warranty, 
and  had  judgment.    In  Henshaw  v.  Eobins,  9  Met.  83,  the 


462  SALES 

bill  of  particulars  affirmed  the  article  to  be  indigo.  The 
Court  said  that  that  imported  an  express  warranty  if  it 
was  so  intended,  and  that  it  must  be  taken  to  have  been 
so  intended,  as  there  was  no  evidence  to  the  contrary.  In 
Brown  v.  Bigelow,  10  Allen  242,  a  case  exactly  in  point, 
these  very  words,  sound  and  kind,  were  held  to  constitute 
a  general  warranty  of  soundness.  In  Gould  v.  Stein,  149 
Mass.  570  (s.  c.  14  Am.  St.  Rep.  455),  a  bought  and  sold 
note  described  the  article  as, '  Ceara  scrap-rubber  as  per 
sample,  of  second  quality. '  The  Court  said  that  it  did  not 
admit  of  doubt  that  the  note  was  intended  to  express  the 
terms  of  the  sale,  and  that  the  contract  of  the  parties  was 
to  be  found  in  what  was  thus  written,  read  in  the  light 
of  the  attendant  circumstances.  Held,  a  warranty  that 
the  rubber  was  of  second  quality,  and  that  the  fact  that 
the  plaintiff  made  such  examination  of  it  as  he  pleased, 
did  not  necessarily  do  away  with  the  warranty. 

[Here  the  Court  discusses  numerous  authorities.] 

"In  Barret  v.  Hall,  1  Atk.  269,  the  note  was  payable  in 
'good  cooking  stoves.'  The  Court  said  that  no  definite 
quality  could  be  intended  from  the  term  good,  and  that 
it  imported  nothing  but  opinion,  and  was  no  warranty, 
and  referred  to  Chandelor  v.  Lopus,  Cro.  Jac.  4,  for  au- 
thority, which  is  no  longer  authority.  But  we  do  not  say 
that  the  Court  was  wrong  in  that  case,  for  good  is  a  very 
common  term  of  praise  in  trade,  and  as  used  in  the  note, 
ascribed  no  particular  quality  to  the  stoves,  and  might 
well  be  regarded  in  that  case  as  mere  matter  of  opinion 
or  commendation  and  as  so  understood  by  the  parties. 

"In  Wason  v.  Rowe,  16  Vt.  525,  the  bill  of  sale  said  the 
horse  was  'considered  sound.'  Held,  no  warranty;  and 
with  good  reason,  for  'considered'  was  no  assertion  of  a 
fact,  but  a  mere  expression  of  opinion. 

' '  The  more  recent  cases  in  this  state  recognize  the  gen- 
eral rule  that  positive  statements  of  fact  by  the  seller  in 
respect  of  the  kind  or  the  quality  of  the  thing  sold  that 
constitute  a  part  of  the  contract  or  form  its  basis  and 
that  are  fairly  susceptible  of  such  a  construction,  are  to 
be  regarded  as  warranties. 


EXPRESS  WARRANTIES  463 

"Thus,  in  Beals  v.  Olnistead,  24  Vt.  114,  one  of  the  rea- 
sons given  why  the  defendant's  statements  ought  to  be  re- 
garded as  warranties  is,  that  they  were  made  positively, 
and  concerning  matters  as  to  which  he  was  supposed  and 
professed  to  have  knowledge;  therefore,  it  is  said,  he 
ought  to  expect  to  be  bound  by  them.  See  also,  Drew  v. 
Ellison,  60  Vt.  401;  Enger  v.  Dawley,  62  Vt.  164. 

*  *  It  is  sufficiently  certain  as  matter  of  construction  that 
the  words  l sound  and  kind,'  found  in  the  bill  of  sale  be- 
fore us,  were  intended  by  the  parties  to  be  a  part  of  the 
contract  of  sale ;  and  as  such,  it  would  be  unreasonable 
to  construe  them  as  an  expression  of  mere  opinion,  when 
they  positively  ascribe  to  the  horses  a  condition  and  a 
»;uality  that  the  defendant  assumed  to  know  they  pos- 
sessed and  that  he  had  peculiar  means  of  knowing  whether 
they  possessed  or  not,  while  the  plaintiff  had  no  such 
means.  We  think  the  words,  reading  the  instrument  in 
the  light  of  the  attendant  circumstances,  clearly  consti- 
tute an  express  warranty  of  soundness,  and  that  the  Chief 
Judge  was  right  in  so  holding." 

Judgment  affirmed. 

Question  261:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  Give  six  examples  from  this  case  of  descriptions  that 
were  held  to  amount  to  warranties. 

(3.)  Assume  in  this  case  that  the  seller  did  not  know  that 'the 
horse  had  a  ringbone.  Would  he  then  be  considered  to  have 
warranted  ? 

(4.)  Give  two  cases  here  that  the  Court  said^were  rightfully 
not  considered  warranties. 

Case  No.  262.    Tyler  v.  Moody  &  Offutt,  111  Ky.  191. 

Facts:  Suit  by  Tyler  for  damages  caused  by  explosion 
of  an  acetylene  gas  generator  which  he  alleges  that  the 
defendants  expressly  warranted  safe  'and  that  no  danger 
or  injury  would  or  could  result  therefrom. '  It  is  con- 
tended that  the  petition  is  insufficient  in  that  it  does  not 
state  that  defendants  knew  that  the  generator  was  de- 
fective. 


464  SALES 

Point  Involved:  Whether  in  case  of  a  warranty,  the 
seller's  knowledge  or  ignorance  of  the  defect  is  material. 

White,  J.:  "*  *  *  In  Chitty  PI.  137,  the  author 
says,  that  case  or  assumpsit  may  be  supported  for  a  false 
warranty  on  the  sale  of  the  goods,  and  that '  in  an  action 
upon  the  case  in  tort  for  a  breach  of  a  warranty  of  goods, 
the  scienter  need  not  be  laid  in  the  declaration,  nor,  if 
charged,  would  it  be  proved.'  In  the  case  of  Shiffen  v. 
Bowen,  122  U.  S.  576,  30  L.  ed.  1172,  7  Sup.  Ct.  Eep.  1283, 
the  Supreme  Court  held  that  this  rule  of  pleading  as 
stated  by  Chitty,  applied  where  the  action  was  for  breach 
of  an  express  warranty,  and  the  scienter  need  not  be  al- 
leged; for  if  the  warranty  was  expressly  made,  it  made 
no  difference  whether  the  warrantor  knew  it  was  false,  or 
did  not  know  whether  it  was  true  or  false.     *     *     *" 

Question  262:  In  ease  of  a  warranty  by  the  seller,  is  the 
seller's  knowledge  that  his  warranty  is  false  necessary  to  give  a 
right  of  action  for  the  breach  of  it? 

(Note:  The  seller's  knowledge  is  essentially  important  in 
actions  founded  on  deceit.  See  cases  in  Contracts.  But  a  war- 
ranty is  not  founded  on  the  seller's  intent  to  deceive,  but  on 
his  affirmation  of  fact  on  which  the  buyer  relies.  So,  in  implied 
warranties,  knowledge  of  the  defect  is  immaterial.) 

Sec.  219.   Affirmation  of  Fact  as  Distinguished  from  Opin- 
ion or  Prediction. 

Case  No.  263.   Bain  v.  Withey  &  Ottman,  107  Ala.  223. 

Facts:  Suit  by  Withey  &  Ottman  against  Bain  on 
promissory  notes  executed  by  Bain.  Bain  defends  that 
plaintiffs  represented  that  they  were  the  owners  of  a  valu- 
able patent  right,  and  that  they  would  sell  and  convey  the 
same  to  him,  authorizing  him  to  make,  sell  and  lease  the 
right  to  use  said  patent  in  certain  counties  and  further 
represented  that  said  patent  was  a  useful  and  beneficial 
invention;   that   said   plaintiffs   fraudulently  concealed 


EXPRESS  WARRANTIES  465 

from  the  defendant  that  said  patent  was  useless  and 
worthless,  while  in  fact  said  patent  was  of  no  value. 
Point  Involved:  Whether  the  statement  by  the  seller 
that  the  thing  sold  was  useful  and  beneficial,  was  a  war- 
ranty. 

Coleman,  J. :  * '  *  *  *  Neither  of  the  pleas  set  up  a 
statement  or  representation  as  having  been  made  by 
plaintiffs,  as  to  the  stability  or  durability  of  the  fence, 
or  its  adaptability  as  a  barrier  to  hogs,  or  to  the  cost  of 
construction,  or  any  fact  characteristic  of  a  fence  made 
after  the  patent.  The  language  of  the  plea  in  this  respect 
is,  that  plaintiffs  represented  it  'as  a  valuable  and  use- 
ful improvement'  but  unaccompanied  by  the  statement 
of  any  fact  which  rendered  it  'valuable  and  useful. '  An 
expression  of  this  character,  made  with  reference  to  a 
patented  improvement,  standing  by  itself,  not  emphasiz- 
ing a  material  fact,  can  be  but  the  expression  of  an  opin- 
ion, upon  which  a  purchaser  has  no  right  to  rely;  and 
this  is  especially  true  when  the  patented  improvement 
is  constructed  and  put  on  exhibition,  and  the  purchaser 
examines  it  for  himself  (citing  cases).  As  stated  by 
Benjamin  on  Sales,  316,  'the  vendor  is  at  liberty  to  praise 
his  merchandise,  in  order  to  enhance  its  value,  if  he 
abstain  from  a  fraudulent  representation  of  facts,  pro- 
vided the  buyer  have  a  full  and  fair  opportunity  of  in- 
specting it,  and  no  means  are  used  for  hiding  the  de- 
fects.' A  buyer  may  always  protect  himself  by  requir- 
ing a  warranty  of  such  matters  as  (to  which)  he  is  un- 
willing to  take  the  risk  on  his.  own  judgment. 

Question  263:  (1.)  State  the  facts  in  this  case,  the  question 
presented  and  what  the  Court  decided. 

(2.)  What  did  the  Court  suggest  as  statements  that  would 
have  constituted  warranties. 

(3.)  A  sold  B  wheat,  stating  that  it  was  "good  wheat."  Is 
this  a  warranty?  (Tex.  Star  Flour  Mill  Co.  v.  Moore,  177  Fed. 
744.) 

(Note :  We  will  find  hereafter  that  in  many  sales  there  is  an 
implied  warranty  of  merchantability,  fitness  for  particular  pur- 


466  SALES 

pose,  etc.    In  the  cases  now  considered,  assume  there  is  no  implied 
warranty.) 

Sec.  220.    The  Reliance  by  the  Buyer  on  the  Affirmation. 

Case  No.  264.    McCormick  v.  Kelley,  28  Minn.  135. 

Facts:  Suit  brought  against  Kelley  on  a  promissory 
note  given  to  McCormick  for  part  of  purchase  price  of  a 
harvester.  Defense,  a  breach  of  warranty.  The  evidence 
tended  to  prove  that  he  got  the  machine  before  the  har- 
vest in  1878,  on  trial,  that  he  used  it  to  cut  about  70  acres 
of  grain  but  that  it  did  not  work  well,  that  he  complained 
about  it,  but  was  urged  to  keep  it,  and  that  he  then  pur- 
chased it,  relying  on  defendant's  assertions  that  it  was  a 
first  class  machine  and  would  do  good  work,  but  knowing 
of  the  defects  of  which  he  now  complains.  The  Court  in- 
structed the  jury:  "A  vendor  may  warrant  against  a 
defect  that  is  patent  and  obvious.  You  sell  me  a  horse, 
and  you  warrant  that  horse  to  have  four  legs  and  he  has 
only  three.  I  will  take  your  word  for  it. ' '  The  Court  then 
read  from  Addison  on  Contracts :  "  When  a  general  war- 
ranty is  given  on  a  sale,  defects  which  were  apparent  at 
the  time  of  the  making  of  the  bargain  and  were  known 
to  the  purchaser  cannot  be  relied  on  as  a  ground  of  action. 
If  one  sells  purple  to  another  and  saith  to  him  'This  is 
scarlet, '  the  warranty  is  to  no  purpose  for  that  the  other 
may  perceive  this;  and  this  gives  no  cause  of  action  to 
him.  To  warrant  a  thing  that  may  be  perceived  at  sight 
is  not  good."  After  reading  this  quotation  the  Court 
then  said :  '  '  Gentlemen,  that  is  not  the  law  of  this  state. ' ' 
Defendant  had  a  verdict  and  judgment,  and  McCormick 
now  appeals,  alleging  error  in  the  instructions  to  the  jury. 

Point  Involved:  Whether  a  general  express  warranty 
covers  a  known  defect. 

Dickinson,  J. :    '  *  *     *     *. 

1 '  The  Court  erred  in  these  instructions  to  the  jury.  It 
has  always  been  held  that  a  general  warranty  should  not 
be  considered  as  applying  to  or  giving  a  cause  of  action 


EXPRESS  WARRANTIES  467 

for  defects  known  to  the  parties  at  the  time  of  making 
the  warranty,  and  both  the  weight  of  authority  and  reason 
authorize  this  proposition,  viz.,  that  for  representations 
in  the  terms  or  form  of  a  warranty  of  personal  property, 
no  action  will  lie  on  account  of  defects  actually  known 
and  understood  by  the  purchaser  at  the  time  of  the  bar- 
gain. *  *  *  In  the  nature  of  things  one  cannot  rely 
upon  the  truth  of  that  which  he  knows  to  be  untrue ;  and 
to  a  purchaser  fully  knowing  the  facts  in  respect  to  the 
property,  misrepresentation  cannot  have  an  inducement 
or  consideration  to  the  making  of  the  purchase,  and  hence 
could  have  been  no  part  of  the  contract. 

"It  has  often  been  said  that  a  general  warranty  may 
cover  patent  defects,  and  it  has  led  to  some  misapprehen- 
sion of  the  law.  The  proposition  is  strictly  true,  but,  as 
was  said  by  the  court  in  Marshall  v.  Drawhorn,  supra,  it 
is  'confined  to  those  cases  of  doubt  and  difficulty  where 
the  purchaser  relies  on  his  warranty,  and  not  on  his  own 
judgment. '  It  has  no  application  to  the  case  of  a  pur- 
chaser who  knows  the  defects  in  the  property  and  the  un- 
truthfulness of  the  vendor 's  representations.  We  do  not, 
however,  mean  to  say  there  may  not  be  a  warranty 
against  the  future  consequences  or  results  from  even 
known  defects.' ' 

Question  264:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  What  is  the  reason  that  a  general  warranty  is  not  to  be 
considered  as  covering  a  known  defect  ? 

(3.)  A  is  about  to  purchase  a  horse.  He  notices  what  ap- 
pears to  him  a  defect  in  the  horse's  eye,  but  B,  the  seller,  assures 
him  that  the  eye  is  all  right,  and  he  will  warrant  it  sound, 
whereupon  A  purchases  the  horse.  Can  he  recover  if  the  eye  is 
unsound  ? 

(4.)  A  sells  B  a  horse  which  has  a  blind  eye,  and  this  B 
could  have  discovered  had  he  gone  out  to  the  barn  about  20 
feet  away,  where  the  horse  was  standing.  He  does  not,  however, 
and  relies  on  A's  warranty  that  the  horse  is  sound.  Can  he 
recover  for  the  blindness  of  the  eye?  (Thompson  v.  Bertrand, 
23  Ark.  730  [Sale  of  a  slave  warranted  to  be  sound  whose  un- 
soundness would  have  been  apparent  on  inspection].) 


168  SALES 

Case  No.  265.    Mitchell  v.  Pinckney,  127  Iowa,  696. 

Facts:  Plaintiff  purchased  of  defendant  21  head  of 
cows.  He  now  sues  for  breach  of  a  warranty  that  they 
were  sound,  alleging  that  they  were  afflicted  with  a  con- 
tagious disease.  The  Court  on  the  evidence  presented 
instructed  the  jury  the  warranty  need  not  be  the  sole  in- 
ducement to  the  purchase,  but  that  it  must  have  been  op- 
erative in  causing  the  sale.  This  instruction  is  now 
alleged  on  appeal  as  error.  It  is  also  claimed  as  error 
that  there  was  no  positive  evidence  by  plaintiffs  that  he 
relied  on  the  warranty. 

Point  Involved:  Whether  the  warranty  must  be  the 
sole  inducement  of  the  sale.  "Whether  the  purchaser  has 
the  burden  of  proof  of  showing  that  he  relied  on  the  war- 
ranty, or  where,  no  evidence  to  the  contrary,  his  reliance 
may  be  presumed. 

Deemer,  J. :  "  But  it  is  said  that  there  is  no  evidence 
that  plaintiffs  relied  upon  the  warranty  or  representa- 
tions, or  that  they  induced  the  sale.  The  Court  instructed, 
in  effect,  that  the  warranty  need  not  be  the  sole  induce- 
ment to  the  purchase,  but  that  it  must  have  been  operat- 
ive in  causing  the  sale.  This,  of  course,  is  the  law.  Rose 
v.  Meeks,  91  Iowa,  715 ;  Tewkesbury  v.  Bennett,  31  Iowa, 
85;  Powell  v.  Chittick,  89  Iowa,  513. 

"But  it  is  not  necessary  that  proof  of  reliance  thereon 
be  by  the  positive  testimony  of  the  buyer.  It  is  sufficient 
if,  considering  all  the  circumstances,  such  fact  fairly  ap- 
pears. Case  Co.  v.  McKinnon,  82  Minn.  75  (84  N.W. 
646) ;  Ormsby  v.  Budd,  72  Iowa,  80.  Indeed,  we  have  held 
that  where  the  warranty  is  a  part  of  the  contract  of  sale, 
and  a  part  of  the  consideration  of  the  purchase  price,  the 
purchaser  need  not  show  by  direct  evidence  that  he  re- 
lied upon  it,  as  the  law  will  presume  that  he  did.  Norris 
v.  Kipp,  74  Iowa,  444." 

Question  265:  State  how  the  purchaser  may  make  a  prima 
facie  case  that  he  relied  on  the  warranty? 


IMPLIED  WARRANTIES  469 

Case  No.  266.     Smith  v.  Hale,  158  Mass.  178. 

Facts:  Alleged  breach  of  warranty  on  the  sale  of  a 
buggy,  to  the  effect  that  it  would  carry  the  purchaser  and 
her  husband  and  "a  hundred  of  01631."  Three  days 
after  the  buggy  was  purchased  a  spring  broke.  The  sell- 
er asked  the  court  to  instruct  the  jury  "that  where  a 
purchaser  inquires  for  himself,  and  acts  upon  his  own 
opinion  he  cannot  say  he  has  been  misled  by  the  false 
statement  of  another;  and  if  he  inspects  and  examines 
the  articles  for  himself  and  selects  it  after  exercising  his 
own  judgment  upon  its  character  and  quality,  the  vendor 
only  warrants  that  the  article  so  far  as  he  knows,  is  what 
it  appeared  to  be,  at  the  time  he  sold  it.  ■ '  The  Court  re- 
fused to  give  this  instruction  and  the  plaintiff  appeals, 
alleging  this  refusal  as  error. 

Point  Invoked:  Whether  an  inspection  by  the  pur- 
chaser precludes  his  reliance  upon  an  express  warranty. 

Allen,  J.:  "*  *  *  The  plaintiff's  third  request 
does  not  contain  a  correct  statement  of  the  law  applicable 
to  the  case.  *  *  *  it  is  enough  to  say  that  a  pur- 
chaser of  an  article  may  examine  it  for  himself  and  ex- 
ercise his  own  judgment  upon  it  and  at  the  same  time 
may  protect  himself  by  taking  a  warranty.    The  refusal 

to  give  the  instructions  requested  was  entirely  right. 

*     #     #  >  ? 

Question  266:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

C.   Implied  Warranties. 

§  221.  The    implied    warranties    of  merchantability    and    fit- 
title,  ness    for    particular    pur- 

§  222.  Implied  warranty  in  a  sale  by  pose. 

description.  §  224.  Implied    warranties    in    sale 

§  223.  The    implied    warranties    of  by  sample. 

Sec.  221.   The  Implied  Warranties  of  Title, 

Case  No.  267.    Uniform  Sales  Act,  Sec.  13. 
(See  page  587,  post.) 


470  SALES 

Question  267:     (1.)     State  the  implied  warranties  of  title. 
(2.)     What  classes  of  sellers  do  not  impliedly  warrant  the 
goods.    Why  ? 

Case  No.  268.    Porter  v.  Bright,  82  Pa.  St.  441. 

Facts:  John  H.  Bright  and  Benedict  sue  Anson  Porter 
and  others,  bankers  as  Corry  Savings  Bank,  to  recover 
the  amount  paid  by  them  for  certain  coupon  bonds  of  the 
City  of  Corry,  alleged  to  be  counterfeit.  The  defense  set 
up  was  that  Bright  and  Benedict  bought  the  bonds  with 
knowledge  that  they  might  be  defective,  that  the  sellers 
had  made  inquiry  about  the  bonds  and  believed  them  gen- 
uine, but  that  they  refused  to  sell  to  plaintiffs  until  plain- 
tiffs had  satisfied  themselves  that  they  were  all  right, 
that  afterwards  Bright  and  Benedict  called  on  defend- 
ants and  stated  they  had  made  inquiry  and  were  satis- 
fied, and  that  defendants  refused  to  warrant  anything 
except  that  the  bonds  had  not  been  stolen. 

Point  Involved:  Whether  there  is  an  implied  warranty 
of  title  where  the  circumstances  show  that  the  seller  posi- 
tively and  expressly  declared  his  refusal  to  warrant  title. 

Mr.  Justice  Shabswood  :    ' '  *     *     * 

"We  are  of  opinion  that  the  offer  of  the  defendants 
below,  the  rejection  of  which  by  the  learned  Court  forms 
the  subject  of  the  first  assignment  of  error,  ought  to  have 
been  admitted. 

"That  offer  was  in  substance  that  the  defendants  did 
not  know  the  bonds  which  they  offered  to  sell  the  plain- 
tiffs to  be  counterfeit,  but  supposed  them  to  be  genuine ; 
that  they  stated  to  the  plaintiffs  what  they  had  done 
themselves  to  ascertain  their  genuiness;  that  the  plain- 
tiffs must  make  inquiry  and  satisfy  themselves  upon  that 
point,  as  they  would  guarantee  against  nothing  except 
their  being  stolen,  and  afterwards  the  plaintiffs  called 
on  the  defendants  and  said  that  they  had  made  inquiries 
and  were  satisfied  from  what  they  had  heard  that  they 
were  genuine,  and  the  sale  was  then  made. 

"No  doubt  every  vendor  of  a  bond  or  other  instrument 


IMPLIED  WARRANTIES  471 

of  writing  warrants  impliedly  his  title  in  the  same  man- 
ner as  the  vendor  of  any  other  personal  chattel  does.  If 
the  bond  is  forged,  or  its  assignment  is  forged,  he  has 
not  title,  and  the  vendee  can  reclaim  the  price  he  has  paid. 
It  makes  no  matter  whether  the  vendor  knows  his  title  to 
be  bad  or  not,  nor  how  entirely  innocent  he  may  be  of  any 
fraud  in  the  transaction.  What  he  has  sold  proves  to  be 
intrinsically  worthless.  But  it  would  be  carrying  this 
doctrine  entirely  too  far  to  hold  that  in  the  absence  of 
concealment  or  false  representation  by  the  vendor ;  the 
vendee  may  not  agree  to  assume  all  the  risk  of  the  title. 
Why  not  in  the  case  of  the  forgery  of  the  instrument  as 
in  the  case  of  any  other  defect  of  the  title,  as,  for  ex- 
ample, that  the  bond  was  void  for  any  other  reason  or 
that  the  assignment  of  it  was  forged?  There  is  nothing 
to  affect  such  a  contract  with  illegality. ' ' 

Question  268:  What  were  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  ease? 

Sec.  222.    Implied  Warranty  in  a  Sale  by  Description. 

Case  No.  269.    Uniform  Sales  Act,  Sec.  14. 

1 'Where  there  is  a  contract  to  sell  or  a  sale  of  goods 
by  description,  there  is  an  implied  warranty  that  the 
goods  shall  correspond  with  the  description  and  if  the 
contract  or  sale  be  by  sample,  as  well  as  by  description, 
it  is  not  sufficient  that  the  bulk  of  the  goods  corresponds 
with  the  sample  if  the  goods  do  not  also  correspond  with 
the  description." 

Question  269:  State  the  implied  warranties  in  a  sale  by  de- 
scription. 

(Note:  The  phrase  "sale  by  description"  has  been  used  to 
describe  two  situations:  One  is  that  of  a  sale  of  an  identified 
article  which  is  described  as  being  of  a  certain  quality,  kind, 
etc.  Such  were  the  cases  we  considered  under  express  warranties 
to  the  effect  that  a  description  of  an  article  as  of  a  certain  quality 
or  kind  is  a  warranty  that  it  is  of  that  kind ;  in  these  cases  the 


472  SALES 

description  is  not  used  to  identify  the  article,  as  where  A  sells 
B  a  certain  horse,  described  as  sound  and  kind.  A  different 
case  is  presented  where  A  agrees  to  sell  B  "102  bales  Ceara 
scrap  rubber,  of  the  second  quality."  Here  the  specific  rubber 
is  not  before  the  parties  and  the  description  is  used  for  purposes 
of  identification.  This  is  more  properly  the  "sale  by  descrip- 
tion" in  which  there  is  the  implied  warranty  that  the  goods 
shall  be  of  that  description. 

When  goods,  so  ordered,  are  not  of  the  description,  but  are 
nevertheless  accepted,  the  question  arises  whether  the  right  to 
sue  for  damages  is  thereby  waived.  On  this  there  are  different 
views.     Case  Sec.  273,  post.) 

Sec.  223.  The  Implied  Warranty  in  a  Sale  by  Description, 
of  Merchantability  and  Fitness  for  Purpose  for  Which 
Purchased. 

Case  No.  270.   Uniform  Sales  Act,  Sec.  15. 
(See  page  588,  post.) 

Question  270:     (See  the  following  cases.) 

Case  No.  271.   Jones  v.  Just,  L.  E.  3  Q.  B.  197. 

Facts:  "The  plaintiffs,  at  Liverpool,  entered  into  a 
contract  with  the  defendants  for  the  purchase  of  a  quan- 
tity of  Manila  hemp,  to  arrive  from  Singapore  by  certain 
ships.  The  ships  arrived,  and  the  hemp  was  delivered 
to  the  plaintiffs  and  paid  for ;  on  examination  of  the  bales 
it  was  found  that  they  had  been  wetted  through  with  salt 
water,  and  afterwards  unpacked  and  dried,  and  then  re- 
packed and  shipped  at  Singapore.  The  hemp  was  not 
damaged  to  such  an  extent  as  to  make  it  lose  its  charac- 
ter of  hemp ;  but  it  was  not  'merchantable.*  The  defend- 
ants did  not  know  of  the  state  in  which  the  hemp  had  been 
shipped  at  Singapore.  The  plaintiffs  sold  the  hemp  at 
auction  as  'Manila  hemp  with  all  faults'  and  it  realized 
75%  of  the  price  which  similar  hemp  would  have  fetched 
if  undamaged. ' '    (From  headnotes  by  the  reporter.) 

Point  Involved:  Whether  there  was  an  implied  war- 
ranty on  the  part  of  the  sellers  that  the  hemp  was 
merchantable. 


IMPLIED  WARRANTIES  473 

Mellok,  J. :    '*•     *     * 

"We  are  of  the  opinion  that  there  is  a  great  distinc- 
tion between  the  present  case  and  the  sale  of  goods  in 
esse,  which  the  buyer  may  inspect,  and  in  which  a  latent 
defect  may  exist,  although  not  discoverable  on  inspec- 
tion. 

1 '  The  cases  which  bear  upon  the  subject  do  not  appear 
to  be  in  conflict,  when  the  circumstances  of  each  are  con- 
sidered.   They  may,  we  think,  be  classified  as  follows : 

''First,  where  goods  are  in  esse,  and  may  be  inspected 
by  the  buyer,  and  there  is  no  fraud  on  the  part  of  the 
seller,  the  maxim  caveat  emptor  applies,  even  though 
the  defect  which  exists  in  them  is  latent,  and  not  dis- 
coverable on  examination,  at  least  where  the  seller  is 
neither  the  grower  nor  the  manufacturer:  Parkinson  v. 
Lee,  2  East  314.  The  buyer  in  such  a  case  has  the  oppor- 
tunity of  exercising  his  judgment  upon  the  matter ;  and 
if  the  result  of  the  inspection  be  unsatisfactory  or  if  he 
distrusts  his  own  judgment  he  may  if  he  chooses  require 
a  warranty.  In  such  a  case,  it  is  not  an  implied  term  of 
the  contract  of  sale  that  the  goods  are  of  any  particular 
quality  or  are  merchantable.  So  in  the  case  of  the  sale 
in  a  market  of  meat,  which  the  buyer  had  inspected,  but 
which  was  in  fact  diseased,  and  unfit  for  food,  although 
that  fact  was  not  apparent  on  examination,  and  the  seller 
was  not  aware  of  it,  it  was  held  that  there  was  no  implied 
warranty  that  it  was  fit  for  food,  and  that  the  maxim 
caveat  emptor  applied :  Emmerton  v.  Mathews,  7  H.  &  N. 
586,  31  L.  J.  Ex.  139. 

1 '  Secondly,  where  there  is  a  sale  of  a  definite  existing 
chattel  specifically  described,  the  actual  condition  of 
which  is  capable  of  being  ascertained  by  either  party, 
there  is  no  implied  warranty :  Barr  v.  Bigson,  3  M.  &  W. 
390. 

"Thirdly,  where  a  known,  described  and  defined  article 
is  ordered  of  a  manufacturer,  although  it  is  stated  to  be 
required  by  the  purchaser  for  a  particular  purpose,  still, 
if  the  known,  described,  and  defined  thing  be  actually 
supplied,  there  is  no  warranty  that  it  shall  answer  the 


474  SALES 

particular  purpose  intended  by  the  buyer:  Chanter  v. 
Hopkins,  4  M.  &  W.  399;  Ollivant  v.  Bailey,  5  Q.  B.  288 
(E.  C.  L.  R.  vol.  48.) 

"Fourthly,  where  a  manufacturer  or  a  dealer  contracts 
to  supply  an  article  which  he  manufactures  or  produces, 
or  in  which  he  deals,  to  be  applied  to  a  particular  pur- 
pose, so  that  the  buyer  necessarily  trusts  to  the  judgment 
or  skill  of  the  manufacturer  or  dealer,  there  is  in  that 
case  an  implied  term  or  warranty  that  it  shall  be  rea- 
sonably fit  for  the  purpose  to  which  it  is  to  be  applied : 
Brown  v.  Edgington,  2  Man.  &  G.  279  (E.  C.  L.  R.  vol. 
15).  In  such  a  case  the  buyer  trusts  to  the  manufacturer 
or  dealer,  and  relies  upon  his  judgment  and  not  upon 
his  own. 

"Fifthly,  where  a  manufacturer  undertakes  to  supply 
goods,  manufactured  by  himself,  or  in  which  he  deals, 
but  which  the  vendee  has  not  had  the  opportunity  of  in- 
specting, it  is  an  implied  term  in  the  contract  that  he 
shall  supply  a  merchantable  article :  Laing  v.  Fidgeon,  4 
Camp.  169,  6  Taunt.  108  (E.  C.  L.  R.  vol.  1).  And  this 
doctrine  has  been  held  to  apply  to  the  sale  by  the  builder 
of  an  existing  barge,  which  was  afloat  but  not  completely 
rigged  and  furnished;  there,  inasmuch  as  the  buyer  has 
only  seen  it  when  built,  and  not  during  the  course  of  the 
building,  he  was  considered  as  having  relied  on  the  judg- 
ment and  skill  of  the  builder  that  the  barge  was  reason- 
ably fit  for  use:  Shepherd  v.  Pybus,  3  Man.  &  G.  868 
(E.  C.L.R.vol.42). 

"If,  therefore,  it  must  be  taken  as  established  that,  on 
the  sale  of  goods  by  a  manufacturer  or  dealer  to  be  ap- 
plied to  a  particular  purpose,  it  is  a  term  in  the  contract 
that  they  shall  reasonably  answer  that  purpose,  and  that 
on  the  sale  of  an  article  by  a  manufacturer  to  a  vendee 
who  has  not  had  the  opportunity  of  inspecting  it  during 
the  manufacture,  that  it  shall  be  reasonably  fit  for  use,  or 
shall  be  merchantable,  as  the  case  may  be,  it  is  difficult 
to  understand  why  a  similar  term  is  not  to  be  implied  on 
a  sale  by  a  merchant  to  a  merchant  or  dealer  who  has  had 
no  opportunity  of  inspection.     *     *     * " 


IMPLIED  WARRANTIES  475 

Question  271:  (1.)  What  is  the  rule  of  caveat  emptor? 
When  does  it  apply? 

(2.)  What  were  the  third  and  fourth  rules  given  by  Justice 
Mellor? 

(3.)  What  were  the  facts  in  Jones  v.  Just,  and  what  did  the 
Court  decide? 

(Note:  This  is  a  leading  and  well-known  case.  The  classi- 
fication made  by  it  is  fairly  accurate,  but  not  entirely  so.  Thus 
in  the  fifth  rule,  the  fact  that  the  buyer  had  inspected  the 
article  bought  by  the  manufacturer  would  not  prevent  him  from 
afterwards  suing  for  a  latent  defect.    See  the  next  case.) 

Case  No.  272.  Nixa  Canning  Co.  v.  Lehman,  etc.,  Grocer 
Co.,  70  Kan.  664. 

Facts:  The  Canning  Co.  sold  the  Grocer  Co.  a  quantity 
of  canned  apples.  The  apples  were  put  np  in  cans  by 
the  Canning  Co.  for  the  purpose  of  selling  them  to  mer- 
chants. The  sale  to  this  Grocer  Co.  was  by  sample,  the 
sample  cans  being  opened  and  examined  by  the  buyer 
before  the  purchase.  The  samples  were  apparently 
sound  and  fit  and  were  not  in  fact  subject  to  any  defect 
that  could  have  been  discovered  by  reasonable  examina- 
tion. By  reason  of  certain  substances  employed  in  the 
canning  process  the  apples  purchased  quickly  spoiled. 
The  Grocer  Co.  sued  the  Canning  Co.  for  damages. 

Point  Involved:  Whether  a  manufacturer  impliedly 
warrants  that  goods  sold  by  him  are  merchantable. 

Mason,  J.,  delivered  the  opinion  of  the  Court:  "The 
Canning  Co.  contends  that,  where  goods  are  sold  by 
sample,  there  is,  in  effect  an  express  warranty  of  con- 
formity to  the  sample  and  no  other  warranty  as  to  quality 
can  be  implied.  This  may  be  granted  to  be  the  ordinary 
rule  as  to  transactions  between  merchants,  but,  where  the 
seller  is  also  the  manufacturer,  there  is  an  implied  war- 
ranty that  the  sample  and  goods  sold  are  alike  free  from 
latent  defects  not  discoverable  upon  ordinary  examina- 
tion. *  *  •"  The  Court  then  quotes  from  Kellogg 
Bridge  Co.  v.  Hamilton,  110  U.  S.  108:    "  'In  ordinary 


476  SALES 

sales  the  buyer  has  an  opportunity  of  inspecting  the 
article  sold;  and,  the  seller  not  being  the  maker,  and 
therefore  having  no  special  or  technical  knowledge  of 
the  mode  in  which  it  was  made,  the  parties  stand  upon 
grounds  of  substantial  equality.  *  *  *  But  when  the 
seller  is  the  maker  or  manufacturer  of  the  thing  sold,  the 
fair  presumption  is  that  he  understood  the  process  of  its 
manufacture,  and  was  cognizant  of  any  latent  defect 
caused  by  such  process  and  against  which  reasonable  dili- 
gence might  have  guarded.  *******  the  de- 
fendant by  implication  warranted  that  the  process  it  em- 
ployed did  not  involve  the  use  of  any  deleterious  sub- 
stance the  presence  of  which  could  not  be  detected  by  any 
reasonable  examination,  but  which  would  in  a  short  time 
render  the  fruit  unfit  for  food,  unmerchantable  and 
worthless." 

Question  272:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  The  A  Automobile  Co.,  a  manufacturer  of  automobiles, 
bought  an  automobile  in  exchange  for  one  of  its  own  make.  It 
then  sold  the  second  hand  machine  to  plaintiff.  The  crank  shaft 
broke  shortly  thereafter  from  a  latent  defect.  Plaintiff  sues  for 
damages  and  claims  that  defendant  impliedly  warranted  the 
merchantability  of  the  car.    Can  he  recover?    Why? 

Case  No.  273.  Reynolds  et  al.  v.  General  Electric  Co. 
et  al.,  141  Fed.  551. 

Facts:  Suit  by  the  General  Electric  Co.  for  pumps  sold 
and  delivered  to  defendant.  Defense  a  breach  of  war- 
ranty arising  out  of  a  latent  defect  in  the  material.  The 
General  Electric  Co.  was  a  manufacturer  of  electrical 
machinery,  but  a  mere  dealer  in  the  pumps,  and  defend- 
ant knew  this. 

Point  Involved:  Whether  one  who  is  a  dealer  and  not 
a  manufacturer  warrants  against  latent  defects  in  the 
manufacture.    (See  also  note  following  this  opinion.) 

Sanborn,  Circuit  Judge  :    '  *  *     *     * 
"It  is  said  that  an  implied  warranty  arose  from  the 
sale,  to  the  effect  that  the  pump  should  be  fit  and  proper 


IMPLIED  WARRANTIES  477 

for  the  pumping  of  water  in  the  shaft  of  a  mine,  and  that 
this  covenant  was  broken.  If  the  pump  was  unfit  to  do 
the  work  which  machines  of  that  nature  ordinarily  per- 
form, that  condition  arose  from  latent  defects  in  the 
material  of  which  it  was  constructed,  or  in  the  workman- 
ship bestowed  upon  it,  of  which  the  plaintiff  had  no  notice. 
The  electric  company  secured  and  delivered  the  article 
of  the  known  manufacture  which  the  mines  company  had 
selected,  and  which  was  described  in  the  contract.  A 
manufacturer  is  charged  by  the  law  with  notice  of  latent 
defects  in  the  design,  materials,  and  construction  of  the 
machines  he  makes  which  unfit  them  to  perform  the  ordi- 
nary work  of  such  articles,  because  he  furnishes  the  de- 
sign, the  materials,  and  the  workmanship,  and  thus  either 
causes  or  permits  the  defects.  Out  of  this  state  of  facts 
and  an  agreement  of  sale  an  implied  warranty  arises  on 
the  part  of  the  manufacturer  that  the  machines  he  makes 
are  suitable  for  the  general  purposes  for  which  such 
articles  are  commonly  used.  Goulds  v.  Brophy,  42  Minn. 
109,  112,  43  N.  W.  834,  6  L.  R.  A.  392.  But  where  such  a 
purchaser  buys  of  a  dealer  a  definite  machine  of  known 
manufacture,  which  has  been,  or  is  to  be,  made  by  a  build- 
er who  is  not  the  vendor,  and  the  vendee  knows  this  fact, 
there  is  no  implied  warranty  by  the  dealer,  either  against 
latent  defects  or  that  the  machine  or  article  will  be  suit- 
able for  the  purpose  for  which  such  articles  are  commonly 
used,  because  the  purchaser  has  the  s»me  knowledge  and 
means  of  knowledge  of  these  subjects  as  has  the  dealer. 
The  vendee  knows  that  they  both  rely  on  the  character 
and  reputation  of  the  manufacturer.  Bragg  v.  Morrill, 
49  Vt.  45,  47,  24  Am.  Rep.  102 ;  American  Forcite  Powder 
Mfg.  Co.  v.  Brady,  4  App.  Div.  95,  97,  38  N.  Y.  Supp.  545 ; 
Gardner  v.  Winter  (Ky.)  78  S.  W.  143,  63  L.  R.  A.  647, 
649." 

Question  273:    State  the  facts,  the  Question  presented  and  the 
Court's  decision  in  the  above  case. 

(Note :    The  cases  are  in  conflict  as  to  whether  one  who  is  a 
mere  dealer  warrants  against  latent  defects.    The  case  above  is 


478  SALES 

one  of  a  line  of  decisions  holding  that  a  dealer  does  not  impliedly 
warrant  that  the  goods  are  merchantable.  And  that  line  con- 
stitutes the  present  weight  of  authority.  Another  line  of  cases 
adopts  the  contrary  view,  and  that  is  the  doctrine,  also,  of  the 
Uniform  Sales  Act,  which  expressly  extends  such  liability  to  a 
mere  dealer.  Says  Professor  Williston  (Sales,  Sec.  233,  p.  310) : 
"If  the  seller  of  specific  goods  is  neither  a  manufacturer  nor  a 
dealer,  generally  no  warranty  of  specific  goods  would  be  implied, 
but  if  the  skill  or  judgment  of  the  seller  were  evidently  relied 
on,  there  seems  no  reason  why  the  nature  of  the  seller's  occu- 
pation should  make  a  difference,  and  the  Sales  Act  has  adopted 
this  idea.") 

Case  No.  274.  Marbury  Lumber  Co.  v.  Stearns  Mfg.  Co., 
32  Ky.  L.  Rep.  739. 

Facts:  The  Stearns  Mfg.  Co.  was  engaged  in  the  manu- 
facture of  locomotive  engines.  The  Marbury  Lumber  Co. 
was  engaged  in  the  manufacture  of  lumber  and  had  at  its 
plant  a  railroad  17  miles  long  on  which  it  hauled  logs 
to  the  mill.  Needing  an  engine  to  use  for  this  purpose  it 
ordered  of  the  Stearns  Co.  an  engine  to  do  the  work  re- 
quired, setting  forth  in  the  order  the  length  of  the  road, 
gauge  of  the  track,  weight  of  rails,  fuel  used,  weight  of 
train,  train  mileage  per  day,  number  of  cars  to  be  hauled, 
steepest  grade,  etc.  The  Stearns  Co.  accepted  the  order 
and  delivered  an  engine  pursuant  thereto,  but  it  was 
found  inadequate  to  do  the  work  required  of  it  and  finally 
broke  down.  The  Lumber  Co.  had  given  notice  of  the 
alleged  defects  and  requested  the  seller  to  take  back  the 
engine.  The  engine  company  brings  suit  for  the  balance 
of  the  purchase  price  and  defendant  sets  up  its  defense 
and  a  counter  claim. 

Point  Involved:  Whether  in  a  sale  of  property  ordered 
by  the  buyer  for  a  particular  purpose  known  to  the  seller, 
there  is  an  implied  warranty  that  it  is  fit  for  that  pur- 
pose. 

Judge  Hobson  delivered  the  opinion  of  the  Court: 
**•  *  *  y?e  think  the  case  falls  within  the  following 
rule  as  laid  down  by  Benjamin  on  Sales,  §  988;  'where  a 


IMPLIED  WARRANTIES  479 

manufacturer  or  dealer  contracts  to  supply  an  article 
which  he  manufactures  or  produces  or  in  which  he  deals, 
to  be  applied  to  a  particular  purpose,  so  that  the  buyer 
necessarily  trusts  to  the  judgment  or  skill  of  the  manu- 
facturer or  dealer,  there  is  in  that  case  an  implied  term 
of  warranty  that  it  shall  be  reasonably  fit  for  the  pur- 
pose to  which  it  is  to  be  applied  (citing  authorities).  In 
such  a  case  the  buyer  trusts  to  the  manufacturer  or  deal- 
er, and  relies  upon  his  judgment  and  not  upon  his  own. ' 
*  It  [the  plaintiff]  understood  precisely  what 
would  be  required  of  it  and,  knowing  this,  made  the  en- 
gine for  the  specific  purpose  for  which  it  was  used. ' ' 

Question  274:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

(2.)  A  sold  a  heating  plant  to  B,  to  be  installed  by  A  in  B's 
house.  A  put  in  a  heating  plant  that  was  well  made,  but  would 
not  heat  B  's  house.  B  refused  to  accept  the  plant.  A  sues  him. 
Can  he  recover?     (Ideal  Heat.  Co.  v.  Kramer,  127  la.  137.) 


Case  No.  275.  Grand  Ave.  Hotel  Co.  v.  Wharton,  79 
Fed.  43. 

Facts:  The  Hotel  Co.  was  a  Missouri  corporation, 
owning  and  conducting  a  hotel  at  Kansas  City,  Missouri. 
B  was  a  manufacturer  of  boilers,  of  whom  the  Hotel  Co. 
ordered  two  ''Harrison  Safety  Boilers"  of  150  horse 
power  each.  The  order  contained  specifications  of  ma- 
terial and  construction.  The  boilers  were  duly  sent, 
well-made  and  of  good  material,  and  were  set  up  for  use. 
It  was  found  that  the  boilers  were  not  available  to  use 
with  the  water  from  the  Missouri  river  on  account  of 
the  sediment  therein.  The  Hotel  Company  contended  that 
as  it  was  known  for  what  particular  purpose  the  boiler 
was  to  be  used  and  that  it  was  to  be  supplied  with 
Missouri  river  water,  there  was  a  warranty  that  the 
boilers  would  be  fit  for  that  purpose. 

Point  Involved:  Whether  there  is  an  implied  war- 
ranty of  fitness  for  particular  purpose,  where  the  buyer 


480  SALES 

orders  a  "known,  described  and  definite"  article,  and 
gets  what  lie  ordered. 

Lochren,  District  Judge,  delivered  the  opinion  of 
the  Court : 

"1.  Where  a  manufacturer  contracts  to  supply  an 
article  which  he  manufactures  to  be  applied  to  a  particu- 
lar use  of  which  he  is  advised,  so  that  the,  buyer  neces- 
sarily trusts  to  the  judgment  and  skill  of  the  manufac- 
turer, there  is  an  implied  warranty  that  the  article  shall 
be  reasonably  fit  for  the  use  to  which  it  is  to  be  applied. 
(Citing  cases.) 

"2.  But  when  a  known,  described,  and  definite  article 
is  ordered  of  a  manufacturer,  although  it  be  stated  by 
the  purchaser  to  be  required  for  a  particular  use,  yet  if 
the  known,  described,  and  definite  thing  be  actually  sup- 
plied, there  is  no  implied  warranty  that  it  shall  answer 
the  particular  purpose  intended  by  the  buyer.  (Citing 
cases.) 

"3.  *  *  *.  Here  the  purchaser  contracted  for  a 
definite,  well-known  kind  of  boiler,  its  president  having 
then  a  boiler  of  the  same  kind  in  use.  The  specifica- 
tions as  to  the  size,  form,  material,  and  every  detail  were 
minute,  and  embodied  in  the  contract.  The  manufac- 
turers were  obligated  to  deliver  exactly  such  boilers  as 
were  described  and  contracted  for,  and  could  not,  under 
the  contract,  deliver  anything  different.  There  is  no 
claim  that  the  boilers  did  not  in  every  respect  conform  to 
this  contract  and  specifications,  nor  any  claim  that  they 
were  defective,  either  in  respect  to  workmanship  or  ma- 
terial. The  purchaser  did  not  exact  a  warranty  that  the 
boilers  would  operate  with  the  muddy  waters  of  the  Mis- 
souri river,  and  therefore  assumed  that  risk  itself." 

Question  275:  (1.)  What  were  the  facts  in  this  case,  the 
question  presented  and  the  Court 's  decision  ? 

(2.)  What  is  the  difference  between  this  case  and  the  case 
immediately  preceding?    Why? 

(3.)  Do  you  think  there  were  any  implied  warranties  in  this 
case?    What? 


IMPLIED  WARRANTIES  481 

Case  No.  276.   Peoria,  etc.,  Co.  v.  Turney,  175  111.  631. 

Facts:    See  the  opinion. 

Point  Involved:  Whether  there  is  an  implied  war- 
ranty of  fitness  for  particular  purpose  where  goods  are 
ordered  by  trade  name. 

Mb.  Justice  Phillips  delivered  the  opinion  of  the 
Court:  "*  *  *  It  is  also  urged  that  the  words 'Reed 
City  Lump  CoaP  in  the  contract,  raised  an  implied  war- 
ranty of  the  quality  of  the  coal.  *  *  *  These  words 
designated  a  certain  kind  of  coal  known  in  commercial 
trade  and  with  which  appellant  was  familiar,  as  it  had 
used  it  prior  thereto.  Therefore,  it  having  contracted 
for  that  kind  of  coal,  if  it  received  what  it  contracted 
for  there  was  no  implied  warranty.  The  common  law 
is  tersely  stated  in  the  English  'Sale  of  Goods  Act,' 
under  Rule  14, '  that  in  the  case  of  a  contract  for  the  sale 
of  a  specific  article  under  its  patent  or  other  trade  name 
there  is  no  implied  contract  as  to  its  fitness  for  any  par- 
ticular purpose  for  the  reason,  as  stated  in  the  authori- 
ties that  'an  undertaking  as  to  fitness  is  not  implied 
where  the  buyer  gets  what  he  bargained  for.'  (Citing 
cases.)" 

Question  276:  State  the  facts,  the  question  presented,  the 
Court's  decision  in  the  above  case  and  the  reasons  therefor. 

Case  No.  277.    Wiedeman  v.  Keller,  171  111.  93. 

Facts:  Defendant  is  a  retail  dealer  in  meats.  Plain- 
tiff called  at  his  place  of  business  and  purchased  a  quan- 
tity of  pork  to  be  used  in  her  family.  The  pork  turned 
out  to  be  unwholesome  and  unfit  for  use,  making  plain- 
tiff and  her  family  sick.  Defendant  did  not  know  that 
the  meat  was  unwholesome.    Plaintiff  sues  for  damages. 

Point  Involved:  Whether  in  a  sale  of  goods  by  a 
dealer  for  purposes  of  immediate  consumption,  there  is  a 
warranty  that  it  is  fit  for  consumption. 

Mr.  Justice  Craig  delivered  the  opinion  of  the 
Court :    "As  a  general  rule,  we  think  the  decided  weight 


482  SALES 

of  authority  in  the  United  States  is,  that  in  all  sales  of 
meats  or  provisions  for  immediate  domestic  use  by  a 
retail  dealer  there  is  an  implied  warranty  of  fitness  and 
wholesomeness  for  consumption.  *  *  *  In  this  case 
*  *  *  the  appellee  was  a  regular  retail  dealer,  and  as 
such  he  sold  the  meat  to  appellant  for  domestic  use,  and 
under  the  law  as  it  seems  to  be  settled  in  this  country, 
as  the  meat  turned  out  to  be  unwholesome,  he  was  liable, 
although  he  was  not  aware  that  it  was  diseased  when 
he  sold  it  to  appellant. 

"In  an  ordinary  sale  of  goods  the  rule  of  caveat 
emptor  applies,  unless  the  purchaser  exacts  of  the  vendor 
a  warranty.  Where,  however,  articles  of  food  are  pur- 
chased from  a  retail  dealer  for  immediate  consumption, 
the  consequences  resulting  from  the  purchase  of  an  un- 
sound article  may  be  so  serious  and  may  prove  so  dis- 
astrous to  the  health  and  life  of  the  consumer  that  pub- 
lic safety  demands  that  there  should  be  an  implied  war- 
ranty on  the  part  of  the  Vendor  that  the  article  sold  is 
sound  and  fit  for  the  use  for  which  it  was  purchased. 
It  may  be  said  that  the  rule  is  a  harsh  one;  but,  as  a 
general  rule,  in  the  sale  of  provisions  the  vendor  has  so 
many  more  facilities  for  ascertaining  the  soundness  or 
unsoundness  of  the  article  offered  for  sale  than  are  pos- 
sessed by  the  purchaser,  that  it  is  much  safer  to  hold  the 
vendor  liable  than  it  would  be  to  compel  the  purchaser 
to  assume  the  risk.    *     *     * ' ' 

Question  277:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

(2.)  A,  not  a  dealer  in  meats,  was  leading  a  cow  down  the 
street  to  pasture.  B  made  an  offer  for  the  animal.  A  accepted 
and  B  led  the  cow  away.  A  knew  that  B  wanted  the  cow  to 
butcher,  but  did  not  know  the  cow  was  diseased,  which  turned 
out  to  be  the  fact,  so  that  the  meat  had  to  be  thrown  away.  A 
sues  for  the  price  of  the  cow.    Has  B  any  defense  ? 

Sec.  224.   Implied  Warranties  in  Sales  by  Samples. 

Case  No.  278.  Nixa  Canning  Co.  v.  Lehman,  etc.,  Grocer 
Co. 

(Set  out  as  Case  No.  272,  supra.) 


IMPLIED  WARRANTIES  483 

Case  No.  279.   Hanson  v.  Busse,  45  111.  497. 

Facts:    They  are  stated  in  the  opinion. 

Point  Involved:    What  constitutes  a  sale  by  sample. 

Mr.  Justice  Lawrence  delivered  the  opinion  of  the 
Court,  wherein  the  facts  are  stated:  "*  *  *  But 
the  rule  itself  must  be  considered  firmly  settled  in  the 
common  law,  that  the  vendor  of  goods  which  the  pur- 
chaser has  at  the  time  of  purchase,  the  opportunity  of 
examining,  is  not  responsible  for  defects  of  quality,  in 
the  absence  of  fraud  and  warranty.     *     *     * 

"In  the  case  before  us  the  proof  shows  that  the  110 
barrels  of  apples  were  piled  up  in  tiers  at  a  railway 
depot  in  Chicago.  The  purchaser  went  with  the  clerk 
of  the  plaintiffs  to  look  at  them.  They  opened  a  couple 
of  barrels  that  stood  on  the  floor.  The  purchaser  was 
lame  from  rheumatism  and  requested  the  clerk  to  climb 
up  and  open  a  barrel  on  the  top  of  the  tiers.  He  did  so, 
and  showed  the  defendant  some  apples  which  were  in 
good  condition,  and  said  they  were  all  like  that.  *  *  * 
The  apples  in  the  three  barrels  exhibited  as  samples  were 
unquestionably  merchantable,  or  the  defendant  would 
not  have  bought.  It  would  be  unreasonable  to  require 
that  he  should  have  opened  every  one  of  the  110  barrels. 
He  had  a  right  to  rely  on  the  samples  shown  to  him,  and 
on  the  representations  of  the  plaintiffs  that  the  apples 
were  good." 

Question  279:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Case  No.  280.   Bierne  v.  Dord,  5  N.  Y.  95. 

Facts:  Bierne  and  Burnside  bought  of  defendant, 
Dord,  a  quantity  of  French  blankets.  The  blankets  were 
wrapped  up  in  bales,  and  the  sale  was  made  at  New 
York  in  the  warehouse  at  which  the  blankets  were.  Two 
or  three  pairs  of  the  blankets  were  exhibited  at  the  time 
and  examined  by  the  purchaser  and  found  to  be  sound. 
Nothing  was  said  by  either  of  the  parties  about  the  con- 


484  SALES 

dition  of  the  other  blankets,  which  could  have  been  ex- 
amined by  the  purchaser  had  he  desired  to  inspect  them. 
Defendant's  clerk,  who  made  the  sale,  testified  on  the  trial 
that  the  blankets  exhibited  were  taken  promiscuously 
from  the  bales  and  that  he  supposed  all  of  the  blankets 
would  correspond  with  them.  Plaintiffs  purchased 
twenty-seven  bales  which  were  put  by  plaintiffs'  direc- 
tion on  board  a  vessel  bound  for  New  Orleans  and  paid 
for  by  plaintiffs.  The  blankets  were  in  fact  largely  moth 
eaten.  The  plaintiffs  sue  for  damages,  alleging  breach 
of  warranty  and  had  judgment  below.  Defendant  ap- 
peals. 

Point  Involved:  Whether  the  exhibition  of  the 
blankets  under  the  circumstances  and  in  the  manner 
stated,  made  the  sale  a  sale  by  sample. 

Jewett,  J.:  "•  *  *  As  a  general  rule,  it  is  well 
established,  as  well  by  our  law  as  by  the  common  law, 
that  where  there  is  neither  fraud  nor  express  warranty 
on  the  executed  contract  for  the  sale  of  a  chattel,  the 
buyer  takes  the  risk  of  its  quality  and  condition.     *     *     * 

"There  is,  however,  an  exception  *  *  *  which  al- 
lows a  warranty  to  be  implied  on  a  sale  of  goods  by 
sample,  that  the  article  is,  in  bulk,  of  the  same  kind  and 
equal  in  quality  with  the  sample  exhibited,  in  reference 
to  which  the  parties  contracted.  When  a  contract  for 
the  sale  of  goods  is  made  by  sample  it  amounts  to  an 
undertaking  on  the  part  of  the  seller,  with  the  purchaser, 
that  all  the  goods  are  similar  both  in  nature  and  quality 
to  those  exhibited.     *     *     * 

"But  the  mere  circumstance  that  the  seller  exhibits  a 
sample,  at  the  time  of  the  sale,  will  not  of  itself  make  a 
sale  by  sample,  so  as  to  subject  the  seller  to  liability  on 
an  implied  warranty  as  to  the  nature  and  quality  of  the 
goods;  because  it  may  be  exhibited,  not  as  a  warranty 
that  the  bulk  corresponds  to  it,  but  merely  to  enable  the 
purchaser  to  form  a  judgment  on  its  kind  and  quality. 
If  the  contract  be  connected  by  the  circumstances  attend- 
ing the  sale,  with  the  sample,  and  refer  to  it,  and  it  be 


IMPLIED  WARRANTIES  485 

exhibited  as  the  inducement  to  the  contract,  it  may  he  a 
sale  by  sample ;  and  then  the  consequences  follows,  that 
the  seller  warrants  the  bulk  of  the  goods  to  correspond 
with  the  specimen  exhibited  as  a  sample.  Whether  a 
sale  be  a  sale  by  sample  is  a  question  of  fact  for  the  jury 
to  find  from  the  evidence  in  each  case ;  and  to  authorize 
a  jury  to  find  such  a  contract  *  *  *  the  evidence 
must  be  such  as  to  authorize  the  jury  *  *  *  to  find 
that  the  sale  was  intended  by  the  parties  as  a  sale  by 
sample.     *     *     * 

1 '  That  a  personal  examination  of  the  bulk  *  *  *  is 
not  practicable  or  convenient,  furnishes  no  sufficient 
ground,  of  itself,  to  say  that  the  sale  is  by  sample 
*  *  *  (such)  is  doubtless  a  strong  fact  in  reference 
to  the  question  of  the  character  of  the  sale,  whether  it 
was  or  was  not  made  by  sample.     *     *     * 

1  'New  trial  granted." 

Question  280:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  How  does  this  case  differ  in  principle  from  the  case 
immediately  preceding  it? 

(3.)  Suppose,  in  this  case,  the  seller  had  called  on  the  buyer 
with  a  French  blanket  and  exhibited  it  as  the  sort  of  blanket 
he  desired  to  sell  to  the  purchaser,  the  other  blanket  not  being 
present  for  inspection.    Would  there  have  been  a  sale  by  sample  ? 

D.  No  Warranty  to  Subpurchasers ;  Their  Rights  in  Tort. 

Sec.  225.   The  Nature  of  a  Seller's  Liability  to  Others  than 
the  Purchaser. 

Case  No.  281.  Lebourdais  v.  Vitrified  Wheel  Co.,  194 
Mass.  341. 

Facts:  This  was  an  action  by  Lebourdais  for  personal 
injuries  sustained  by  him  on  account  of  the  burst- 
ing of  an  emery  wheel  manufactured  by  defendant,  and 
bought  by  plaintiff's  employer  of  a  dealer  to  whom  it  had 
been  sold  by  the  defendant. 


486  SALES 

Point  Involved:  Whether  the  liability  for  selling  a 
defective  article  extends  to  other  persons  than  the  imme- 
diate purchaser. 

Braley,  J. :  "The  manufacturer  of  an  article  of  mer- 
chandise which  he  puts  upon  the  market  ordinarily  is 
not  responsible  in  damages  to  those  who  may  receive 
injuries  caused  by  its  defective  construction,  but  to  whom 
he  sustains  no  contractual  relations,  although  by  the  ex- 
ercise of  reasonable  diligence  he  should  have  known  of 
the  defect.  If  such  an  extended  liability  attached  where 
no  privity  of  contract  exists  it  would  include  all  persons 
however  remote  who  had  been  damaged  either  in  person 
or  property  by  his  carelessness,  and  manufacturers  as  a 
class  would  be  exposed  to  such  far  reaching  consequences 
as  to  seriously  embarrass  the  general  prosecution  of 
mercantile  business.  In  the  usual  course  of  trade  upon 
making  a  sale,  as  the  article  passes  from  the  ownership 
and  control  of  the  maker,  it  is  held  that  when  these  cease 
his  liability  also  should  be  considered  as  ended.  David- 
son v.  Nichols,  11  Allen,  514 ;  Clifford  v.  Atlantic  Cotton 
Mills,  146  Mass.  47,  48;  Glynn  v.  Central  Eailroad,  175 
Mass.  510,  512.  But  where  by  reason  of  its  nature  the 
article  sold  is  commonly  recognized  as  intrinsically  dan- 
gerous to  life  or  property,  among  which  gunpowder, 
nitroglycerine  and  other  highly  explosive  compounds, 
naphtha  and  poisonous  drugs  are  some  familiar  ex- 
amples, if  the  seller  without  notice  of  their  dangerous 
or  noxious  qualities  delivers  them  to  a  customer  or  to  a 
carrier  who  is  ignorant  of  these  properties,  he  is  liable 
not  only  to  him,  but  to  others  to  whom  while  in  the  exer- 
cise of  reasonable  care  they  are  the  proximate  cause  of 
injury.  Davidson  v.  Nichols,  11  Allen,  514;  Carter  v. 
Towne,  98  Mass.  567;  Wellington  v.  Downer  Kerosene 
Oil  Co.,  104  Mass.  64;  Norton  v.  Sewall,  106  Mass.  143; 
Boston  &  Albany  Eailroad  v.  Shanly,  107  Mass.  568; 
Turner  v.  Page,  186  Mass.  600 ;  Oulighan  v.  Butler,  189 
Mass.  287,  292;  Flynn  v.  Butler,  189  Mass.  377,  388; 
Thomas  v.  Winchester,  2  Seld.  397.    A  similar  liability 


IMPLIED  WARRANTIES  487 

exists  where  a  caterer  furnishes  impure  and  unwhole- 
some food  by  which  the  guests  of  his  customer  are  made 
sick,  or  where  a  manufacturer  or  vendor  knowingly  sells 
for  general  use,  without  disclosing  the  existence  of  the 
defect,  a  machine,  mechanical  instrumentality  or  other 
article,  which  because  of  its  defective  construction  or 
condition  when  put  out  causes  injury.  Bishop  v.  Weber, 
139  Mass.  411,  417;  McDonald  v.  Snelling,  14  Allen,  290; 
Flynn  v.  Butler,  189  Mass.  377 ;  Lewis  v.  Terry,  111  Cal. 
39 ;  Huset  v.  Case  Threshing  Machine  Co.,  120  Fed.  Rep. 
865 ;  Clarke  v.  Army  &  Navy  Co-operative  Society,  (1903) 
1  K.  B.  155,  167.  In  all  of  these  various  transactions  his 
liability  does  not  rest  on  privity  of  contract,  but  the  act 
itself  is  deemed  not  only  a  legal  wrong,  but  may  be  said 
to  be  in  violation  of  the  duty  he  owed  to  those  with  whom 
he  dealt,  as  well  as  of  the  implied  duty  which  he  owes  to 
the  community  to  refrain  from  the  commission  of  acts 
of  negligence  whereby  injury  follows  to  its  members  in 
person  or  property.  If  damages  are  suffered  he  is  re- 
sponsible because  they  are  such  as  reasonably  should 
have  been  foreseen,  though  the  exact  way  in  which  the 
accident  is  precipitated  may  be  determined  by  a  foreign 
cause.  McDonald  v.  Snelling,  ubi  supra;  Flynn  v.  But- 
ler, ubi  supra;  Huset  v.  Case  Threshing  Machine  Co.,  ubi 
supra;  Lane  v.  Cox,  (1897)  1.  Q.  B.  415,  417.  It  is  within 
the  last  exception,  if  the  plaintiff  has  a  right  of  action 
against  this  defendant,  that  there  it  must  be  found.' ' 
[The  Court  held  that  the  plaintiff  did  not  properly  state 
his  case  in  his  pleadings,  to  give  him  a  right  of  action.] 

Question  281:  (1.)  If  A  sells  to  B  and  expressly  or  im- 
pliedly warrants  merchantability  of  the  article  sold,  and  B  resells 
to  C,  can  C  sue  A  on  the  warranty  ?  or  assuming  that  a  warranty 
does  not  run  to  B,  can  it  be  construed  to  run  to  C  ? 

(2.)  On  what  theory  or  theories  can  a  subpurchaser,  or  any 
person  other  than  the  immediate  vendee  recover? 

(3.)  A  sues  M,  declaring  that  M  knowing  that  one  B  was 
a  retailer  of  fluids  to  be  burned  in  lamps  for  illuminating  pur- 
poses, and  knowing  that  naphtha  was  explosive  and  dangerous 
for  such  use,  sold  and  delivered  naphtha  to  B  knowing  that  B 


488  SALES 

intended  to  retail  it  in  his  business,  and  that  B,  in  ignorance 
of  its  dangerous  qualities,  retailed  a  pint  of  such  naphtha  to  A 
to  be  burned  in  his  lamp  for  illumination,  and  that  the  plaintiff, 
in  like  ignorance,  used  the  fluid  and  was  burned.  Can  A  recover 
against  M?  (Wellington  v.  Downer  Kerosene  Oil  Co.,  104  Mass. 
64.) 

(4.)  A,  druggist,  negligently  labeled  a  deadly  poison  as  a 
harmless  medicine,  and  sold  it  to  dealers  who  retailed  it  to  their 
customers.  State  right  of  customers  to  sue  A  ?  To  sue  retailers  ? 
(Thomas  v.  Winchester,  2  Seld.  397.) 

(5.)  A,  a  painter,  purchased  of  M,  a  manufacturer  of  step- 
ladders,  and  such  ladder,  in  use  by  B,  one  of  A's  employes,  broke 
from  a  defect  caused  by  M's  negligence,  and  precipitated  B  to 
the  ground,  injuring  him.  Can  B  recover  against  M?  (Schubert 
v.  J.  R.  Clarke  Co.,  49  Minn.  331.) 

(6.)  Plaintiff  bought  a  coat  from  Young  Bros.,  his  local  deal- 
ers, who  bought  it  from  the  B.  &  S.  Company,  wholesalers,  who 
knew  that  the  fur  collars  of  such  coats  contained  dyes  that  some- 
times poisoned  the  skin  of  some  wearers,  but  were  worn  with 
safety  by  others.  Plaintiff,  who  sustained  poison  by  wearing 
such  coat,  sues  the  B.  &  S.  Co.  in  tort.  Can  he  recover?  (Gerkin 
v.  Brown  &  Sehler  Co.,  143  N.  W.  (Mich.)  48.) 

(7.)  Plaintiff  purchased  a  bottle  of  Malt  Nutrine  from  a 
druggist,  who  procured  it  from  a  wholesaler,  who  procured  it 
from  the  manufacturer,  who  advertised  it  as  wholesome.  The 
liquor  was  contaminated  and  plaintiff's  wife  was  made  sick  and 
his  young  son  died.  Can  plaintiff  recover  against  the  manu- 
facturer on  theory  of  broken  warranty?  on  theory  of  tort? 
(Roberts  v.  Anheuser-Busch  Brew.  Ass'n,  98  N.  E.  (Mass.)  95.) 

(Note :  See  a  collection  of  authorities  in  Huset  v.  Case  Thresh- 
ing Machine  Co.,  120  Fed.  Rep.  865.) 


PART  X 
TRANSFER  OF  TITLE 

Chapter  Forty.  Transfer  of  Title  as  Between  Buy- 

er and  Seller. 

Chapter  Forty-one.      Transfer    of    Title   as   Affecting 

Third  Persons. 

Chapter  Forty-two.     Documents  of  Title. 

CHAPTER   FORTY 

TRANSFER  OF  TITLE  AS  BETWEEN  BUYER  AND 

SELLER 

A.  Rules  governing  transfer  of  title.       C.  Transfer  of  title  in  auction  sales. 

B.  Reservation  of  title  by  means  of       D.  Risk  of  loss. 

documents  of  title. 

A.   Rules  Governing  Transfer  of  Title. 

§  226.  Title  to  unascertained  goods  §  230.  Same  subject :  sale  or  return 
cannot  be  transferred.  or  sale  on  approval. 

§227.  Title  to  ascertained  goods  §231.  Same  subject:  upon  appro- 
passes  according  to  parties'  priation  of  unascertained 
intention.                                                     goods. 

§228.  Rules  determining  intention;  §232.  Same  subject:    seller  to  de- 
title  is  presumed  to  pass  liver  at  particular  place, 
when  contract  made. 

3  229.  Same   subject :   seller  to  put 
goods  in  deliverable  state. 

Sec.  226.    Title  to  Unascertained  Goods  Cannot  be 
Transferred. 

Case  No.  282.   Hahn  v.  Fredericks,  30  Mich.  223. 
Facts:    Fredericks  sued  Hahn  to  recover  the  price  of 
certain  wood,  which  was  destroyed  by  fire  before  it  had 

489 


490  SALES 

been  withdrawn  by  the  purchasers.  The  wood  bargained 
for  was  200  cords  of  hard  wood  out  of  a  pile  of  between 
350  and  400  cords  in  which  was  scattered  a  small  amount 
of  soft  wood.  The  wood  was  all  piled. in  tiers  on  Port- 
age lake,  the  six  rows  nearest  the  lake  containing  about 
201  cords  in  which  there  were  11  or  12  cords  of  soft  wood. 
A  fire  destroyed  the  wood  before  there  was  any  selection. 
Plaintiffs  sue  for  the  purchase  price  on  the  theory  that 
title  had  passed  to  Hahn  before  the  fire,  and  the  loss 
was  therefore  his. 

Point  Involved:  Whether  title  can  pass  before  the 
goods  that  constitute  the  subject  of  the  sale  are  specific- 
ally ascertained. 

Campbell,  J. :    * '  *     *     * 

"The  principal  question  in  the  case  seems  to  be, 
whether  the  sale  actually  attached  to  any  two  hundred 
cords  which  could  be  identified  before  the  fire. 

"It  is  not  claimed,  and  there  is  nothing  to  warrant 
the  notion,  that  the  contract  was  intended  to  be  severable, 
or  to  attach  to  anything  less  than  two  hundred  cords  of 
hard  wood,  and  of  no  other  wood.  There  was  no  sale 
of  the  first  six  piles  as  they  stood,  or  of  the  hard  wood 
in  the  first  six  piles,  independent  of  so  much  more  as 
would  fill  up  the  measure. 

"Until  an  actual  measurement,  which  was  to  be  made 
when  the  hard  wood  was  removed  from  the  piles  and  as 
it  was  placed  on  the  scows,  it  is  evident  that  there  could 
be  no  parcel  identified  to  which  a  sale  could  attach  as 
complete.  It  was  a  bargain  for  a  parcel  yet  to  be  meas- 
ured out  of  a  larger  parcel  of  various  qualities,  and  of 
an  extent  not  determined.  The  original  measurement 
was,  under  this  contract,  of  no  importance. 

"We  have  found  no  authority  which  recognizes  such 
a  transaction  as  a  completed  sale.  It  was  not  a  sale  in 
gross  of  an  entire  parcel  of  wood,  where  the  measure- 
ment was  only  necessary  to  ascertain  the  quantity,  as  in 
Adams  Mining  Co.  v.  Senter,  26  Mich.  73.  Here  the 
measurement  was  necessary  to  complete  the  identifica- 


TRANSFER  OP  TITLE  491 

tion,  and  to  determine  what  wood  was  to  belong  to  the 
purchaser.  Under  such  an  arrangement  it  is  well  settled 
that  no  title  passes  to  any  portion  of  the  property  until 
it  has  been  measured  and  thus  identified  and  severed 
from  the  rest.  Dunlap  v.  Berry,  4  Scam.  327 ;  Court- 
right  v.  Leonard,  11  Iowa,  32 ;  Young  v.  Austin,  6  Pick. 
280 ;  Merrill  v.  Hunnewell,  13  Pick.  213 ;  Mason  v.  Thomp- 
son, 18  Pick.  305;  Scudder  v.  "Worster,  11  Cush.  573; 
Simmons  v.  Swift,  5  B.  &  C.  857;  Rugg  v.  Minett,  11  E. 
210;  Shepley  v.  Davis,  5  Taunt.  617." 

Question  282:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  A  sold  B  a  quantity  of  shingles  to  be  selected  out  of  a 
large  mass,  B  to  make  the  selection.  Before  B  had  selected  the 
shingles,  B's  creditors  had  a  levy  made  on  the  quantity  sold. 
A  sues  the  sheriff  making  the  seizure  for  interfering  with  his 
property.  Will  the  action  lie?  (Goldberg  v.  Bussey,  47  S.  "W. 
(Tex.)  49.) 

Case  No.  283.   Uniform  Sales  Act,  Sec.  17. 
(See  page  589,  post.) 

Question  283:  What  is  the  provision  of  this  section  of  the 
Sales  Act? 

Case  No.  284.   Kimberly  v.  Patchin,  19  N.  Y.  330. 

Facts :  One  Dickinson  had  in  a  warehouse  two  piles  of 
wheat,  amounting  to  6,249  bushels.  John  Shuttleworth 
proposed  to  purchase  6,000  bushels  of  the  wheat  and 
a  memorandum  was  made  out  to  that  effect  and  the  wheat 
was  left  undisturbed  in  the  warehouse.  Shuttleworth 
then  sold  the  wheat  to  Patchin.  Dickinson  then  sold  the 
two  piles  of  wheat  to  a  person  from  whom  Kimberly  de- 
rived his  claim  of  title.  Patchin  then  got  possession  of 
the  wheat  and  Kimberly  sues  him  for  damages,  on  the 
theory  that  Shuttleworth,  whatever  contract  he  might 
have  had,  never  had  title,  as  the  6,000  bushels  were  never 
ascertained  and  that  title  therefore  could  not  be  passed  to 
Patchin. 


492  SALES 

Point  Involved:  Whether  title  to  goods  of  a  fungible 
nature  can  pass  before  the  particular  goods  are  ascer- 
tained out  of  a  larger  mass  owned  by  the  seller,  the  par- 
ties intending  to  actually  transfer  title. 

Comstock,  J. :  "*  *  *  When  Shuttleworth  bought 
the  6,000  bushels,  that  quantity  was  mixed  in  the  store- 
house with  the  excess  and  no  measurement  or  separation 
was  made.  The  sale  was  *  *  *  precisely  of  6,000 
bushels.  On  this  ground  it  is  claimed,  on  the  part  of 
the  plaintiffs,  that  in  legal  effect  the  contract  was  ex- 
ecutory, in  other  words,  a  mere  agreement  to  sell  and 
deliver  the  specified  quantity,  so  that  no  title  passed  by 
the  transaction.  It  is  not  denied,  however,  *  *  * 
that  the  parties  intended  a  transfer  of  title.  The  argu- 
ment is  and  it  is  the  only  one  which  is  plausible,  that  the 
law  overrides  that  intention.    *     *     * 

"It  is  a  rule  *  *  *  that  in  order  to  make  an  ex- 
ecuted sale,  so  as  to  transfer  a  title  from  one  party  to 
another,  the  thing  sold  must  be  ascertained.  This  is  a 
self-evident  truth  when  applied  to  those  subjects  of  prop- 
erty which  are  distinguishable  by  their  physical  attri- 
butes from  all  other  things  and  therefore  are  capable  of 
exact  identification.  No  person  can  be  said  to  own  a 
horse  or  a  picture  unless  he  is  able  to  identify  the  chat- 
tel, or  specify  what  horse  or  what  picture  belong  to 
him.     *     *     * 

"But  property  can  be  acquired  and  held  in  many 
things    which    are    incapable    of    such    identification. 

*  *  *  Of  this  nature  are  wine,  oil,  wheat  and  other 
cereal  grains,  and  the  flour  manufactured  from  them. 

*  *  *  where  the  quantity  and  the  general  mass  from 
which  it  is  to  be  taken  are  specified,  the  subject  of  the 
contract  is  thus  ascertained,  and  it  becomes  a  possible 
result  for  title  to  pass,  if  the  sale  is  complete  in  all  its 
other  circumstances.    *    *    * 

"We  are  of  opinion,  therefore,  both  upon  authority 
and  clearly  upon  the  principle  and  reason  of  the  thing 


TRANSFER  OF  TITLE  493 

that  the  defendant  under  the  sale  to  Shuttleworth,  ac- 
quired a  perfect  title  to  the  6,000  bushels  of  wheat. 


(Note:  There  are  two  lines  of  cases  which  hold  oppo- 
site views  in  sales  of  parts  of  homogeneous  masses,  one 
line  holding  that  title  cannot  pass  until  separation, 
though  the  intention  of  the  parties  might  have  been  to 
pass  title,  because  it  is  impossible  to  say  what  particu- 
lar part  the  buyer  owns.  The  leading  authority  for  this 
doctrine  is  perhaps  Scudder  v.  "Worster,  11  Cush.  573. 
The  other  doctrine,  whose  leading  authority  is  the  case 
above,  is  sufficiently  therein  stated.  It  seems  the  more 
sensible  doctrine  though  the  weight  of  authority  seems 
against  it.  The  Uniform  Sales  Act,  however,  adopts  it 
and  it  is  probably  gaining  ground.  It  is  hardly  necessary 
to  say  that  such  a  doctrine  can  only  refer  to  sales  of  part 
of  a  homogeneous  or  fungible  mass.) 

Question  284:     State  the  doctrine  of  the  above  case. 

(2.)  A  has  a  lot  of  logs  on  his  place,  numbering  about  5,000. 
He  "sells"  to  B  1,000  of  the  logs.  Before  any  selection  is  made, 
in  whom  is  the  title?    Why? 

Sec.  227.   Title  to  Ascertained  Goods  Passes  According  to 
the  Parties'  Intention. 

Case  No.  285.    Uniform  Sales  Act,  Sec.  18. 

11  (1)  Where  there  is  a  contract  to  sell  specific  or  ascer- 
tained goods,  the  property  in  them  is  transferred  to  the 
buyer  at  such  time  as  the  parties  to  the  contract  intend 
it  to  be  transferred. 

"  (2)  For  the  purpose  of  ascertaining  the  intention  of 
the  parties,  regard  shall  be  had  to  the  terms  of  the  con- 
tract, the  conduct  of  the  parties,  usages  of  trade,  and  the 
circumstances  of  the  case." 

Question  285:  When  there  is  a  contract  to  sell  specific  or 
ascertained  goods,  state  by  general  terms  when  title  will  pass. 


> 

494  SALES 

Sec.  228.  Rules  Determining  Intention:  That  Title  Is  Pre- 
sumed to  Pass  When  Contract  Is  Made. 

Case  No.  286.    Uniform  Sales  Act,  Sec.  19,  Rule  1. 

"  [Unless  a  different  intention  appears.]  Where  there 
is  an  unconditional  contract  to  sell  specific  goods,  in  a 
deliverable  state,  the  property  in  the  goods  passes  to  the 
buyer  when  the  contract  is  made,  and  it  is  immaterial 
whether  the  time  of  payment,  or  the  time  of  delivery,  or 
both,  be  postponed." 

Question  286:  Under  what  circumstances  is  title  presumed 
to  pass  when  the  contract  is  made?  Is  this  a  rule  of  law  or  a 
presumption  of  fact? 

Case  No.  287.  Rail  v.  Little  Falls  Lumber  Co.,  47  Minn. 
422. 

Facts:    The  following  contract  was  made: 

"I,  Case  Rail,  hereby  sell  to  the  Little  Falls  Lumber 
Co.,  247  logs,  marked  *C.  R.'  and  stamped  'C.  R.'  and 
scaling  60,300  feet,  at  $7.00  per  thousand  feet,  to  be  de- 
livered by  me  in  the  Mississippi  River,  the  same  being 
now,  etc.  Payments  to  be  made  as  follows  (setting  forth 
certain  installments)."  Part  of  these  logs  were  de- 
stroyed by  fire  before  delivery.  Case  brought  suit  to 
recover  the  installment  due  after  the  fire. 

Point  Involved:  Whether  by  the  contract  in  question, 
title  had  been  passed,  and  as  a  consequence  whether  the 
loss  was  upon  the  buyer. 

Collins,  J.,  delivered  the  opinion  of  the  Court: 
"The  single  question  here  presented  is  whether  the  con- 
tract entered  into  between  these  parties  was  an  executed 
one,  or  simply  executory.  If  the  former,  the  title  to  the 
logs  *  *  *  vested  in  the  vendee  corporation ;  the  risk 
attendant  upon  the  title  and  the  subsequent  loss  *  *  * 
must  be  borne  by  it,  unaffected  by  the  fact  that  the  vendor 
was  to  make  delivery  in  the  Mississippi  River. 

"There  is  a  seeming  confusion  in  the  decisions  as  to 


TRANSFER  OF  TITLE  495 

when  the  title  to  personal  property  does  pass  on  sale,  but 
it  has  arisen  out  of  a  failure  clearly  to  distinguish  be- 
tween general  contracts  for  the  sale  of  chattels  of  a  cer- 
tain kind  and  contracts  for  the  sale  of  chattels,  spe- 
cifically ascertained  and  identified. 

1 1  *  #  #  jn  the  case  a£  Dar  there  should  be  no  doubt 
upon  the  undisputed  facts,  that  the  title  vested  in  the 
vendee  at  the  date  of  the  agreement.  All  the  vendor's 
logs  lying  at  a  certain  point  *  *  *  the  same  being 
duly  marked  and  scaled  were  included  in  the  writing 

*  *     *     (all  the  items)  were  stated  with  particularity. 

*  *  *  In  every  respect  it  was  a  completed  contract 
and  the  assent  of  both  parties  that  the  title  should  pass 
was  obvious.     *     *     *" 

(The  Court  holds  that  as  title  had  passed,  the  loss 
was  upon  the  purchasers  and  the  deferred  installments 
must  be  paid.) 

Question  287:  (1.)  State  the  facts,  the  question  presented 
and  Court's  decision  in  the  above  case. 

(2.)  At  9  o'clock  on  Sept.  5,  A  sold  a  carriage  to  B,  giving  B 
an  order  on  the  liveryman  in  whose  possession  it  was.  At  12 
o  'clock  an  execution  issued  against  the  goods  of  A,  and  by  gen- 
eral law  became  a  lien  thereon.  At  5  o'clock  on  the  same  day 
B  came  and  took  the  carriage  away.  The  constable  now  takes 
the  buggy  under  the  execution.  B  brings  replevin  against  the 
constable.  Can  he  recover?  (Peterson  v.  Bostrom,  99  111.  Ap. 
210.) 

Sec.  229.   Rules  Determining  Intention:  Seller  to  Put 
Goods  in  Deliverable  State. 

Case  No.  288.   Uniform  Sales  Act,  Sec.  19,  Rule  2. 

"  [Unless  a  different  intention  appears.  1  Where  there 
is  a  contract  to  sell  specific  goods  and  the  seller  is  bound 
to  do  something  to  the  goods  for  the  purpose  of  putting 
them  into  a  deliverable  state,  the  property  does  not  pass 
until  such  thing  be  done. ' ' 

Question  288:    State  the  above  rule. 


496  SALES 

Case  No.  289.   Hamilton  v.  Gordon,  22  Ore.  557. 

Facts:  Suit  to  recover  certain  wheat  as  the  property 
of  the  plaintiffs.  Gordon,  the  defendant,  made  a  con- 
tract with  Hamilton  &  Rourke,  the  plaintiffs,  reading 
that  Gordon  "hereby  sells  and  agrees  to  deliver  to  Ham- 
ilton &  Rourke,  in  their  warehouses  or  platform  at  Van- 
sycle,  Oregon,  on  or  before  October  1,  1891,  all  the  grain 
harvested  by  me  on  land  described  below;  wheat  sacked 
in  good  merchantable  sacks,  the  same  being  that  certain 
crop  now  harvested  or  to  be  harvested,  etc." 

Point  Involved:  "Whether  under  the  agreement  by 
which  the  seller  was  to  harvest  and  sack  grain,  before 
delivery  to  the  buyer,  title  passed  before  such  harvest- 
ing and  sacking  was  done. 

Bean,  J.,  delivered  the  opinion  of  the  Court: 
<<#  *  *  Whether  an  agreement  concerning  the  sale 
and  delivery  of  goods  *  *  *  is  to  be  treated  as  an 
executed  or  an  executory  contract,  and  whether  the  thing 
which  is  the  subject  of  the  contract  becomes  the  property 
of  the  buyer  the  moment  the  contract  is  concluded,  or 
remains  the  property  of  the  vendor  until  the  contract  is 
fully  executed,  is  often  a  difficult  and  embarrassing  ques- 
tion. *  *  *  As  between  the  parties  it  is  generally 
considered  a  question  of  intention.  *  *  *  As  a  gen- 
eral rule  where  by  the  agreement  the  vendor  is  to  do  any- 
thing with  the  property  for  the  purpose  of  putting  it  into 
deliverable  condition  or  into  that  state  in  which  the  pur- 
chaser is  bound  to  accept  it,  the  performance  of  these 
things  in  the  absence  of  circumstances  showing  a  con- 
trary intention  is  taken  to  be  a  condition  precedent  to 
the  vesting  of  the  property  in  the  buyer.     *     *     * 

<<#  #  #  }n  this  case  the  grain  was  to  be  harvested 
and  sacked  'in  good  merchantable  sacks'  by  the  vendor 
in  order  to  put  it  in  deliverable  condition  and  by  him 
conveyed  to  the  warehouse  or  platform  *  *  *  at 
Vansycle  before  plaintiffs  were  bound  to  accept  or  re- 
ceive it  or  pay  for  the  same.    *     *     * 

"The  contract  is  only  a  contract  for  the  sale  of  a  cer- 


TRANSFER  OF  TITLE  497 

tain  crop  of  grain;  and  if  defendant  has  violated  his 
agreement  by  delivering  only  a  part  of  the  grain  and  re- 
fusing to  deliver  the  remainder,  plaintiffs,  if  damaged, 
have  their  remedy,  but  not  by  an  action  to  recover  pos- 
session of  the  property.     *     *     *" 

Question  289:  (1.)  State  the  facts,  the  question  presented 
vnd  the  Court's  decision  in  the  above  case. 

(2.)  A  had  a  quantity  of  wood  which  B  agreed  to  purchase, 
A  to  chop  the  same  into  four-feet  lengths.  Before  the  wood  was 
chopped,  A's  creditors  seized  it  under  a  writ  of  execution.  B 
claims  the  wood.  Should  he  prevail  ?  (Frost  v.  Woodruff,  54  111. 
155.) 

(Note :  If  the  goods  are  specified,  but  weighing  or  measuring 
is  to  be  done  by  the  seller  to  ascertain  the  price,  the  goods  being 
otherwise  in  a  deliverable  state,  it  is  the  rule  in  most  states  that 
title  does  not  pass  until  such  weighing  or  measuring  be  done. 
It  is  shown  by  Williston  (Sales,  Sections  267,  268,  269)  that  this 
"rule  was  originally  founded  on  a  mistake,  has  no  principle 
behind  it,  and  has  already  been  abolished  in  some  states  in  this 
country  without  the  aid  of  legislation.") 

Sec.  230.  Rules  Governing  the  Intention  of  the  Parties: 
Where  Goods  Delivered  on  Sale  or  Return  or  on  Ap- 
proval. 

Case  No.  290.    Uniform  Sales  Act,  Sec.  19,  Rule  3. 

"  [Unless  a  different  intention  appears.] 

"  (1)  When  goods  are  delivered  to  the  buyer  'on  sale 
or  return'  or  on  other  terms  that  have  indicated  an  in- 
tention to  make  a  present  sale,  but  to  give  the  buyer  an 
option  to  return  the  goods  instead  of  paying  the  price, 
the  property  passes  to  the  buyer  on  delivery,  but  he  may 
revest  the  property  in  the  seller  by  returning  or  tender- 
ing the  goods  within  the  time  fixed  in  the  contract,  or,  if 
no  time  has  been  fixed,  within  a  reasonable  time. 

"When  goods  are  delivered  to  the  buyer  on  approval 
or  on  trial  or  satisfaction,  or  other  similar  terms,  the 
property  therein  passes  to  the  buyer — 


498  SALES 

"(a)  When  he  signifies  his  approval  or  acceptance  to 
the  seller  or  does  any  other  act  adopting  the  transac- 
tion ; 

"(b)  If  he  does  not  signify  his  approval  or  acceptance 
to  the  seller,  but  retains  the  goods  without  giving  notice 
of  rejection,  then,  if  a  time  has  been  fixed  for  the  return 
of  the  goods,  on  the  expiration  of  such  time,  and,  if  no 
time  has  been  fixed  on  the  expiration  of  a  reasonable 
time.    What  is  a  reasonable  time  is  a  question  of  fact. ' ' 

Question  290:  State  when  title  passes,  if  at  all,  under  para- 
graph 1  above ;  under  paragraph  2. 

Case  No.  291.    Foley  v.  Felrath,  98  Ala.  176. 

Facts:  Foley  sued  Felrath  for  $502.56  for  goods  sold. 
Foley  was  a  manufacturer  of  gold  pens  in  New  York 
City.  Being  in  Mobile,  Alabama,  he  called  on  defendant 
and  sold  a  bill  of  goods,  with  right  in  defendant  to  return 
some  of  the  goods  which  ho  would  select  and  return  in 
exchange  for  others.  The  goods  were  lost  in  transit  to 
Alabama  by  the  Express  Company.  Plaintiff  sues  for 
the  purchase  price. 

Point  Involved:  "Whether  the  sale  was  on  approval  or 
sale  and  return,  and  accordingly  on  whom  the  loss  was 
pursuant  to  return. 

Habalson,  J. :  "*  *  *  In  Allen,  Bethune  &  Co.  v. 
Maury  &  Co.,  supra  [66  Ala.  17],  we  said:  'Where,  how- 
ever, goods  are  sold  and  delivered,  the  terms  of  sale  being 
specified,  and  the  vendee  reserves  the  right  to  reject  or 
return,  the  title  passes,  liable  to  be  divested  by  the  exer- 
cise of  this  option  to  rescind  expressed. within  a  reason- 
able time. '  *  *  *  An  option  to  purchase  if  the  party 
to  whom  the  goods  are  transferred  should  like  is  very 
different  from  an  option  to  return  the  goods  if  he  should 
not  like  them.  *  *  *"  (Held  that  risk  of  loss  was 
on  purchaser.) 

Question  291:  (1.)  In  the  above  case  was  title  in  the  seller 
or  purchaser  at  the  time  of  the  loss? 


TRANSFER  OF  TITLE  499 

(2. )  What  is  the  difference  between  a  ' '  sale  on  approval ' '  and 
a  ' '  sale  and  return ' '  ?  What  important  consequence  follows  upon 
the  distinction? 

Case  No.  292.    Pence  v.  Carney,  78  Ark.  123. 

A,  a  jeweler,  of  Hot  Springs,  sent  two  diamond  rings 
to  B  "with  the  agreement  and  understanding  that  if  she 
was  pleased  with  same  she  should  keep  them  and  account 
to  the  plaintiff  at  the  above  value,  and  if  not  pleased 
would,  within  a  reasonable  time  return  them  to"  A  at 
Hot  Springs.  These  rings  being  lost  before  returned  to 
A,  without  fault  of  B,  the  question  was  upon  whom,  as 
owner,  the  loss  must  fall. 

Point  Involved:  The  distinction  between  a  shipment  on 
trial  or  satisfaction  or  approval  and  a  sale  and  return. 

McCulloch,  J.,  delivered  the  opinion  of  the  Court: 
a*  *  *  Under  the  contract  stated  the  title  remained 
in  the  seller  and  any  loss  or  damage  sustained  from  any 
cause  except  negligence  of  the  purchaser  fell  upon  the 
seller.  *  *  *  The  distinction  between  the  two  classes 
of  contracts  is  concisely  stated  by  the  Supreme  Court  of 
Massachusetts  in  Hunt  v.  Wyman  (100  Mass.  198),  as 
follows :  'An  option  to  purchase  if  he  liked  is  essentially 
different  from  an  option  to  return  if  he  should  not  like. 
In  one  case  the  title  will  not  pass  until  the  option  is  de- 
termined ;  in  the  other,  the  property  passes  at  once,  sub- 
ject to  the  right  to  rescind  and  return'     *     *     *" 

Question  292:  (1.)  Was  the  title  in  the  seller  or  purchaser 
when  the  loss  occurred  ? 

(2.)     On  whom  was  the  loss?    Why? 

Case  No.  293.  Springfield  Engine  Stop  Co.  v.  Sharp,  184 
Mass.  266. 

Facts:  Suit  for  $200  for  the  price  of  an  engine  stop 
installed  in  Sharp's  factory.  The  stop  was  put  in  for  a 
30  days '  trial  and  was  to  be  taken  away  if  defendant  did 
not  like  the  stop.  This  30  days  was  afterwards  extended 
to  another  30  days.    The  60  days  expired  on  June  30  or 


500  SALES 

July  1.  On  Monday,  July  3rd,  defendants  wrote  plaintiff 
that  they  had  decided  not  to  take  the  stop  and  it  could  be 
taken  out  at  plaintiff's  convenience.  The  stop  was  used 
on  Saturday,  July  1st  and  Monday,  July  3rd,  and  plain- 
tiff contends  that  this  failure  to  give  notice  until  the  3rd 
and  the  use  of  the  stop  on  the  1st  and  3rd  made  defend- 
ants liable.  Defendants  had  judgment  below  and  plaintiff 
appeals. 

Point  Involved:  Whether  when  goods  are  sent  on 
trial  for  a  certain  period  of  time,  the  expiration  of 
that  time  ipso  facto  vests  title  in  the  buyer  (there  being 
no  express  stipulation)  unless  he  returns  the  goods  or 
gives  notice  of  the  rejection  within  the  time  stated;  and 
whether  the  use  of  the  goods  after  the  period  is  con- 
clusive evidence  of  an  election  to  keep  them. 

Loring,  J. :  *  *  The  true  rule  is  laid  down  in  the  other 
cases  cited  by  the  plaintiff,  and  it  is  this :  The  party  to 
the  contract  who  is  to  make  the  trial  has  the  full  period 
agreed  upon  for  the  trial,  and  in  the  absence  of  any  stipu- 
lation on  the  point  he  has  a  reasonable  time  after  the  expi- 
ration of  it  to  signify  his  election.  See  Elphick  v.  Barnes, 
5  C.  P.  D.  321;  Spickler  v.  Marsh,  36  Md.  222;  Kahn  v. 
Klabunde,  50  Wis.  235 ;  Waters  Heater  Co.  v.  Mansfield, 
48  Vt.  378. 

' '  The  plaintiff 's  next  contention  is  that  it  had  a  right  to 
go  to  the  jury  on  the  use  made  on  Saturday  and  on  Mon- 
day as  evidence  of  the  defendants'  election  to  take  the 
stop.  The  retention  of  the  stop  after  Friday,  June  30, 
apart  from  the  use  of  it,  had  no  significance.  This  was 
not  the  case  of  a  sale  or  return ;  by  the  terms  of  the  agree- 
ment which  the  plaintiff  was  to  disconnect  the  stop  from 
the  engine  and  take  it  away  if  the  defendants  were  not 
satisfied  with  it.  But  the  use  of  the  stop  after  the  expira- 
tion of  the  period  of  trial  agreed  upon,  unexplained,  would 
be  evidence  of  an  election,  as  is  the  failure  to  return  a 
machine  taken  under  a  sale  or  return  agreement.  See 
Kahn  v.  Klabunde,  50  Wis.  235 ;  Spickler  v.  Marsh,  36  Md. 
222;  Waters  Heater  Co.  v.  Mansfield,  48  Vt.  378.    The 


TRANSFER  OF  TITLE  501 

English  cases  are  collected  in  Benjamin,  Sales,  593  et  seq. 
In  the  case  at  bar  the  use  of  the  stop  on  Monday  could  not 
be  taken  to  be  evidence  of  an  election,  for  on  Monday 
morning  the  defendants  wrote  to  the  plaintiff  that  they 
elected  to  take  the  other  stop,  and  the  letter  was  posted 
between  two  and  three  o'clock  on  that  day.  This  letter 
deprives  the  use  made  of  the  machine  on  Monday  of  all 
force  as  evidence  of  an  election,  as  was  said  in  Hunt  v. 
Wyman,  100  Mass.  198,  200,  in  a  similar  case.  See  also 
Elphick  v.  Barnes,  5  C.  P.  D.  321. 

"There  is  nothing  on  the  record  showing  why  the  de- 
fendant used  the  stop  on  Saturday.  If,  for  example,  the 
use  on  Saturday  came  from  inadvertence  or  because  the 
defendants  thought  that  the  extension  did  not  expire  until 
the  end  of  that  day,  the  use  on  that  day  would  be  de- 
prived of  all  force  as  evidence  of  an  election,  as  we  have 
held  to  be  the  case  of  the  use  on  Monday.  And  there  may 
have  been  other  explanations  of  that  use  which  would  re- 
sult in  the  same  conclusion. 

"But  no  explanation  was  given  at  the  trial  as  to  the 
use  made  of  the  machine  on  Saturday,  and  on  this  state  of 
the  evidence  the  plaintiff  had  a  right  to  go  to  the  jury  on 
the  question  whether  the  use  of  the  stop  on  Saturday 
showed  an  election  to  take  the  stop  and  that  the  defend- 
ants afterward  changed  their  minds  and  wrote  the  letter 
declining  it  on  Monday. 

"Exceptions  sustained." 

Question  293:  (1.)  In  the  above  case,  did  title  vest  on 
receipt  of  the  stop,  subject  to  defeasance,  or  was  it  to  vest  at  the 
end  of  the  period? 

(2.)  Did  the  defendant  have  any  time  after  the  expiration 
of  the  period? 

(3.)  In  the  language  of  Sec.  19,  Rule  3,  of  the  Sales  Act, 
what  sort  of  a  sale  was  this? 

(Note:  That  by  the  language  of  the  Sales  Act,  there  is  no 
time  given  after  the  period  if  that  Act  is  to  be  literally  followed.) 

Case  No.  294.   House  v.  Beak,  141  HI.  290. 
Facts:     Goods  were   sent   to   defendants   at  certain 
prices,  to  be  paid  for  as  sold,  all  unsold  goods  to  be  re- 


502  SALES 

turned.  The  transaction  was  not  a  consignment  but  a  sale 
with  right  to  return.  The  goods  were  kept  for  about  three 
years  without  being  returned. 

Point  Involved:  What  constitutes  a  reasonable  time  in 
which  they  must  be  returned  (there  being  no  time  stated) ; 
and  the  effect  of  a  failure  to  return  them  within  that  time. 

Mr.  Chief  Justice  Magruder  :  "  *  *  * 
"  'A  contract  "on  sale  and  return"  is  an  agree- 
ment, by  which  goods  are  delivered  by  a  wholesale 
dealer  to  a  retail  dealer  to  be  paid  for  at  a  certain  rate, 
if  sold  again  by  the  latter ;  and  if  not  sold  to  be  returned.' 
(Story  on  the  Law  of  Sales,  sec.  249.)  If  the  vendee  re- 
turns the  goods,  the  contract  of  sale  is  at  an  end ;  if  he 
does  not,  the  sale  becomes  absolute,  and  the  price  of  the 
goods  may  be  recovered  in  an  action  for  goods  sold  and 
delivered.  If  no  time  is  specified  within  which  the  return 
is  to  be  made,  the  law  implies  that  they  are  to  be  returned 
within  a  reasonable  time.  What  is  a  reasonable  time  will 
depend  upon  the  circumstances  of  each  case.  (Idem.) 
In  such  cases,  the  property  in  the  goods  passes  to  the  pur- 
chaser subject  to  an  option  in  him  to  return  them  within  a 
fixed  or  reasonable  time ;  the  price  is  fixed  at  the  time  of 
the  sale  and  delivery  of  the  goods ;  the  purchaser  deals 
with  the  goods  as  his  own,  disposes  of  them  as  he  pleases 
for  cash  or  on  credit,  is  under  no  obligation  to  give  any  ac- 
count of  his  disposition  of  them,  and  is  only  liable  to  pay 
for  them  at  a  price  fixed  beforehand,  without  any  refer- 
ence to  the  price  at  which  he  sells  them.  (Jameson  v. 
Gregory,  4  Mete.  (Ky.)  363 ;  In  re  Linforth,  4  Sawyer  (U. 
S.  C.  C.  Rep.)  370;  Ex  parte  White  in  re  Neville,  Law 
Rep.  6  Chanc.  App.  397.)     *     *     * 

"Such  sales  may  be  regarded  as  subject  to  a  condition 
subsequent,  that  is,  upon  condition  that,  if  the  goods  are 
not  sold,  they  are  to  be  returned.  Therefore,  the  prop- 
erty vests  presently  in  the  vendee,  defeasible  on  the  per- 
formance of  the  condition.  If  the  defendant  disables  him- 
self from  performing  the  condition,  or  fails  to  perform 
it  within  a  reasonable  time,  his  liability  to  pay  the  price 


TRANSFER  OF  TITLE  503 

fixed  becomes  unconditional,  and  the  plaintiff  may  declare 
as  upon  an  indebitatus  assumpsit.  (Ray  v.  Thompson, 
12  Cush.  281.)" 

Question  294:  (1.)  When  the  defendants  received  the  goods, 
in  whom  was  title? 

(2.)  What  is  the  effect  of  a  failure  to  return  within  the  time 
given? 

Sec.  231.    Rules  Determining  Intention:  Upon  Appro- 
priation of  Goods  Unascertained  at  Time  of  Sale. 

Case  No.  295.   Uniform  Sales  Act,  Sec.  19,  Rule  4. 

"Rule  4.  (1)  Where  there  is  a  contract  to  sell  unas- 
certained or  future  goods  by  description,  and  goods  of 
that  description  and  in  a  deliverable  state  are  uncondi- 
tionally appropriated  to  the  contract,  either  by  the  seller 
with  the  assent  of  the  buyer,  or  by  the  buyer  with  the 
assent  of  the  seller,  the  property  in  the  goods  thereupon 
passes  to  the  buyer.  Such  assent  may  be  expressed  or 
implied,  and  may  be  given  either  before  or  after  the 
appropriation  is  made. 

"(2)  Where,  in  pursuance  of  a  contract  to  sell,  the 
seller  delivers  the  goods  to  the  buyer,  or  to  a  carrier  or 
other  bailee  (whether  named  by  the  buyer  or  not)  for  the 
purpose  of  transmission  to  or  holding  for  the  buyer,  he 
is  presumed  to  have  unconditionally  appropriated  the 
goods  to  the  contract,  except  in  cases  provided  for  in  the 
next  rule  and  in  section  20.  This  presumption  is  appli- 
cable, although  by  the  terms  of  the  contract,  the  buyer  is 
to  pay  the  price  before  receiving  delivery  of  the  goods, 
and  the  goods  are  marked  with  the  words  'collect  on  de- 
livery' or  their  equivalents." 

Question  295:    State  Rule  4  (1)  and  Rule  4  (2). 

Case  No.  296.  Mucklow,  Assignee,  v.  Mangles,  1  Taunt. 
318. 

Facts:  Royland,  who  was  a  barge  builder,  undertook 
to  build  a  barge  for  Pocock  out  of  materials  furnished  by 


504  SALES 

Eoyland.  Pocock  advanced  some  money  on  the  barge 
before  it  was  begun  and  as  the  work  proceeded  he  paid 
him  more.  When  the  work  was  nearly  finished  Pocock 's 
name  was  printed  on  the  stern.  Two  days  after  the  com- 
pletion of  the  work,  and  before  the  barge  was  delivered 
to  Pocock,  Mangles,  the  defendant,  as  sheriff  took  the 
property  as  the  property  of  Royland  but  delivered  it  to 
Pocock  under  an  indemnity.  Afterwards  a  commission 
in  bankruptcy  issued  against  Royland  upon  an  act  of 
bankruptcy  committed  before  the  completion  of  the  vessel 
and  Mucklow  as  his  assignee  in  bankruptcy  brings  suit 
against  Mangles  for  interference  with  the  property  al- 
leged to  belong  to  the  bankrupt. 

Point  Involved:  At  what  point  title  passes  under  a 
contract  by  the  seller  to  manufacture  an  article  out  of 
property  furnished  by  the  seller,  where  the  work  pro- 
gresses on  the  article  and  it  is  seen  and  approved  by  the 
purchaser  during  its  progress,  and  payments  are  made 
on  the  contract. 

Mansfield,  C.  J. :  "  The  only  effect  of  the  payment  is 
that  the  bankrupt  was  under  a  contract  to  finish  the 
barge ;  that  is  quite  a  different  thing  from  a  contract  of 
sale,  and  until  the  barge  was  finished  we  cannot  say  that 
it  was  so  far  Pocock 's  property  that  he  could  have  taken 
it  away.  It  was  not  finished  at  the  time  when  Royland 
committed  the  act  of  bankruptcy;  it  was  finished  only 
two  days  before  the  execution.     *     *     *"    . 

Heath,  J. :  "  This  is  a  species  of  contract  which  in  the 
civil  law  is  described  by  the  term  Do  ut  facias.  It  comes 
within  the  cases  that  have  been  held  to  be  executory  con- 
tracts, and,  as  such,  not  within  the  Statute  of  Frauds,  as 
contracts  for  the  sale  of  goods.  A  tradesman  often  fin- 
ishes goods  which  he  is  making  in  pursuance  of  an  order 
given  by  one  person  and  sells  them  to  another.  If  the 
customer  has  other  goods  made  for  him  within  the  stipu- 
lated time  he  has  no  right  to  complain ;  he  could  not  bring 
trover  against  the  purchaser  for  the  goods  so  sold.    The 


TRANSFER  OF  TITLE  505 

painting  of  the  name  on  the  stern  in  this  case  makes  no 
difference.  If  the  thing  be  in  existence  at  the  time  of  the 
order,  the  property  of  it  passes  by  the  contract  but  not 
so  where  the  subject  is  to  be  made. ' ' 

Question  296:  (1.)  State  the  facts  in  the  above  ease,  the 
question  presented  and  the  Court's  decision. 

(2.)  A  orders  a  wagon  to  be  made  by  B  out  of  materials 
furnished  by  B.  B  proceeds  to  build  a  wagon,  which  A  from 
time  to  time  sees  and  with  which  he  expresses  his  approval. 
After  it  is  finished,  except  the  painting,  the  wagon  burns,  and 
B  is  unable  to  deliver  the  wagon  by  the  time  agreed  on.  A  sues 
B.    Has  B  any  defense? 

Case  No.  297.  Rohde  and  Others  v.  Thwaites,  6  Barne- 
wall  &  Cresswell's  Rep.  388. 

Facts:  Suit  for  the  price  of  20  hogsheads  of  sugar, 
alleged  to  have  been  sold  by  Rohde  to  Thwaites.  On  Dec. 
3,  1825,  Rohde  had  in  his  warehouse  on  the  floor  in  bulk, 
a  much  larger  quantity  of  sugar  than  would  be  required 
to  fill  20  hogsheads,  but  no  part  was  in  hogsheads.  De- 
fendant, Thwaites,  saw  the  sugar  in  this  condition  and 
made  the  contract  in  question.  Four  hogsheads  were 
filled  up  and  delivered  to  defendant  on  December  10,  and 
a  few  days  afterwards  plaintiff  filled  up  the  remaining 
16  hogsheads,  and  gave  notice  to  the  purchaser  that  they 
were  ready  and  for  him  to  take  them  away,  to  which 
reply  was  made  that  he  would  take  them  away  as  soon 
as  he  could.  The  point  whether  title  had  passed,  or  it 
was  a  mere  executory  contract  to  sell,  arises  on  a  tech- 
nical question  of  pleading. 

Point  Involved:  Whether  as  to  the  16  hogsheads  there 
was  a  sufficient  appropriation  by  the  seller  with  the  con- 
sent of  the  buyer  to  pass  the  title  to  the  defendant. 

Bayley,  J. :  "Where  a  man  sells  part  of  a  large  parcel 
of  goods,  and  it  is  at  his  option  to  select  part  for  the 
vendee,  he  cannot  maintain  any  action  for  goods  bar- 
gained and  sold,  until  he  has  made  that  selection ;  but  as 


506  SALES 

soon  as  he  appropriates  part  for  the  benefit  of  the  vendee, 
the  property  in  the  article  sold  passes  to  the  vendee,  al- 
though the  vendor  is  not  bound  to  part  with  the  posses- 
sion until  he  is  paid  the  price.  Here  there  was  a  bar- 
gain, by  which  the  defendant  undertook  to  take  twenty 
hogsheads  of  sugar,  to  be  prepared  or  filled  up  by  the 
plaintiffs.  Four  were  delivered;  as  to  them  there  is  no 
question,  but  as  to  the  sixteen  it  is  said,  that  as  there  was 
no  note  or  memorandum  of  a  contract  in  writing  sufficient 
to  satisfy  the  statute  of  frauds,  there  was  no  valid  sale 
of  them ;  and  that  the  plaintiffs  in  their  declaration  hav- 
ing stated  their  claim  to  arise  by  virtue  of  a  bargain  and 
sale,  cannot  recover  for  more  than  the  four  hogsheads 
which  were  actually  delivered  to  and  accepted  by  the  de- 
fendant; that  in  order  to  recover  for  the  others  they 
ought  to  have  declared  specially,  that,  in  consideration 
that  the  plaintiffs  would  sell,  the  defendants  promised  to 
accept  them.  In  answer  to  this,  it  is  said  that  there  was 
an  entire  contract  for  twenty  hogsheads,  and  that  the  de- 
fendant, by  receiving  four,  had  accepted  part  of  the  goods 
sold  within  the  meaning  of  the  seventeenth  section  of  the 
statute  of  frauds.  In  fact,  the  plaintiffs  did  appropriate, 
for  the  benefit  of  the  defendant,  sixteen  hogsheads  of 
sugar,  and  they  communicated  to  the  defendant  that  they 
had  so  appropriated  them,  and  desired  him  to  take  them 
away;  and  the  latter  adopted  that  act  of  the  plaintiffs, 
and  said  he  would  send  for  them  as  soon  as  he  could.  I 
am  of  opinion,  that  by  reason  of  that  appropriation  made 
by  the  plaintiffs,  and  assented  to  by  the  defendant,  the 
property  in  the  sixteen  hogsheads  of  sugar  passed  to  the 
vendee.  That  being  so,  the  plaintiffs  are  entitled  to  re- 
cover the  full  value  of  the  twenty  hogsheads  of  sugar, 
under  the  count  for  goods  bargained  and  sold.  The  rule 
for  setting  aside  this  writ  of  inquiry  must  therefore  be 
discharged. ' ' 

Question  297:    State  the  facts,  the  question  presented  and  the 
Court's  decision  in  the  above  case. 


TRANSFER  OP  TITLE  507 

Case  No.  298.    Bryans  v.  Nix,  4M.&W.  775. 

Facts:  Plaintiffs  sue  defendants  for  conversion  of 
oats  alleged  to  belong  to  plaintiffs  and  claimed  by  defend- 
ants. The  controversy  arose  as  follows :  One  Tempany 
was  a  shipper  and  exporter  of  grain  at  Longf  ord,%Ireland. 
He  shipped  a  cargo  of  oats  on  board  boat  No.  604,  and 
sent  the  bill  of  lading  to  plaintiffs,  together  with  another 
bill  for  oats  on  boat  54,  but  there  were  at  that  time  no 
oats  on  boat  54.  This  took  place  February  2.  The  boat 
was  partially  loaded  afterward  for  delivery  to  plaintiffs, 
but  Tempany  changed  his  mind  and  sold  the  oats  on  boat 
54  to  defendants  who  got  possession,  and  they  are  now 
sued  by  plaintiffs  who  claim  the  oats  as  their  own. 

Point  Involved:  Whether  partial  appropriation  of  the 
goods  in  receptacles  furnished  by  the  seller  passes  the 
title  to  the  goods  so  partially  appropriated. 

Paeke,  B.:    "*     *     * 

1  'In  our  opinion,  therefore,  the  plaintiffs  had  a  com- 
plete title  to  the  cargo  of  the  boat  604,  at  least  on  the 
7th  of  February,  when  they  complied  with  the  condition 
by  accepting  the  bill;  and  before  the  7th,  no  other  title 
as  to  the  oats  intervened ;  for  the  order  to  deliver  them 
to  Walker,  given  on  the  6th,  was  clearly  executory  only. 
But  the  claim  of  the  plaintiffs  to  the  cargo  of  boat  54 
stands  on  a  very  different  footing. 

"At  the  time  of  the  agreement,  proved  by  the  bill  of 
lading  or  boat-receipt  of  the  31st  January,  to  hold  the  530 
barrels  therein  mentioned  for  the  plaintiffs,  there  were 
no  such  oats  on  board ;  and  consequently  no  specific  chat- 
tels which  were  held  for  them.  The  undertaking  of  the 
boat-master  had  nothing  to  operate  upon,  and  though 
Miles  Tempany  had  prepared  a  quantity  of  oats  to  put 
on  board,  those  oats  still  remained  his  property;  he  might 
have  altered  their  destination,  and  sold  them  to  any  one 
else;  the  master's  receipt  no  more  attached  to  them,  than 
to  any  other  quantity  of  oats  belonging  to  Tempany.  If, 
indeed,  after  the  31st  of  January,  these  oats  so  prepared, 
or  any  other  like  quantity,  had  been  put  on  board  to  the 


508  SALES 

amount  of  530  barrels,  or  less,  for  the  purpose  of  fulfilling 
the  contract,  and  received  by  the  master  as  such,  before 
any  new  title  to  these  oats  had  been  acquired  by  a  third 
person,  we  should  have  probably  held,  that  the  property 
in  these"  oats  passed  to  the  plaintiffs,  and  that  the  letter 
and  receipt,  though  it  did  not  operate,  as  it  purported  to 
do,  as  an  appropriation  of  any  existing  specific  chattels, 
at  least  operated  as  an  executory  agreement  by  Tempany 
and  the  master  and  the  plaintiffs,  and  that  when  so  put, 
the  master  should  hold  them  on  their  account ;  and  when 
that  agreement  was  fulfilled,  then,  but  not  otherwise,  they 
would  become  their  property.  But  before  the  complete 
quantity  of  530  barrels  was  shipped,  and  when  a  small 
quantity  of  oats  only  were  loaded,  and  before  any  ap- 
propriation of  oats  to  the  plaintiffs  had  taken  place,  Tem- 
pany was  induced  to  enter  into  a  fresh  engagement  with 
the  defendant,  to  put  on  board  for  him  a  full  cargo  for 
No.  54,  by  way  of  satisfaction  for  the  debt  due  to  him ; 
for  such  is  the  effect  of  the  delivery  order  of  the  6th,  and 
the  agreement  with  Walker,  of  the  same  date,  to  send  the 
boat-receipt  for  the  cargo  of  that  vessel.  Until  the  oats 
were  appropriated  by  some  new  act,  both  contracts  were 
executory.  On  the  9th  this  appropriation  took  place,  by 
the  boat-receipt  for  the  550  barrels  then  on  board,  which 
was  signed  by  the  master,  at  the  request  of  Tempany; 
whereby  the  master  was  constituted  the  agent  of  the  de- 
fendant to.  hold  those  goods ;  and  this  was  the  first  act  by 
which  these  oats  were  specifically  appropriated  to  any 
one.  The  master  might  have  insisted  on  Tempany 's  put- 
ting on  board  oats  to  the  amount  of  the  first  bill  of  lad- 
ing, on  account  of  the  plaintiffs,  but  he  did  not  do  so." 

Question  298,:  State  the  facts  and  the  holding  in  the  above  case. 

Case  No.  299.   Belz  &  Co.  v.  McMorrow,  173  Mass.  8. 

Facts:  Suit  by  Belz  &  Co.  for  the  price  of  10  hogsheads 
and  2  barrels  of  ale  sold  to  McMorrow.  Defense  that  the 
ale  was  sold  at  Boston  without  the  license  required  by  law. 
Belz  &  Co.  was  a  Philadelphia  corporation  and  the  goods 


TRANSFER  OF  TITLE  509 

were  ordered  through  an  importing  broker  located  at 
Boston,  who  was  directed  to  have  the  goods  delivered  at 
Boston.  Belz  &  Co.  accepted  the  order  and  shipped  the 
goods  by  the  Phila.  S.  S.  Co.,  taking  bills  of  lading  mak- 
ing them  deliverable  to  McMorrow.  One  of  the  bills  of 
lading  was  sent  to  McMorrow  and  the  other  to  a  for- 
warder for  the  S.  S.  Co.,  who  took  the  goods  to  McMorrow, 
who  paid  the  freight.  The  Court  found  for  the  plaintiff. 
Defendant  appeals. 

Point  Involved:  Whether  the  goods  shipped  by  a  car- 
rier from  the  seller  to  the  purchaser  who  paid  the  freight, 
became  the  property  of  the  consignee  at  point  of  ship- 
ment or  point  of  destination. 

Holmes,  J. :  "•  *  *  On  this  state  of  facts,  we  can- 
not say  that  the  finding  of  the  Court  was  unwarranted ; 
for  in  view  of  the  defendant's  paying  the  freight,  it  was 
entirely  reasonable  for  the  Court  to  find  that  the  defend- 
ant's direction  to  Hayes  [the  broker]  to  deliver  the  ale 
at  his  place  of  business  (assuming  the  Court  to  have  be- 
lieved that  it  was  given)  was  meant  only  to  give  the  ad- 
dress of  destination,  and  neither  had  nor  was  intended 
to  have  any  effect  on  the  question  when  title  passed.  If 
this  view  be  taken,  then  the  case  is  governed  by  the  gen- 
eral rule  that  a  shipment  by  a  seller  with  an  independent 
common  carrier,  to  the  order  of  the  buyer,  passes  the  title 
as  soon  as  the  carrier  receives  the  goods.     *     *     *" 

Question  299:  A,  of  New  York,  writes  to  a  Chicago  typewriter 
maker,  ordering  a  machine.  The  addressee  selects  a  machine 
from  its  stock  and  hangs  out  a  sign  notifying  the  Adams  Express 
Co.  to  call.  A  driver  stops  and  picks  up  the  machine.  While  in 
the  wagon  the  machine  is  struck  by  lightning  and  destroyed. 
A  is  sued  for  the  price  of  the  typewriter.     Has  he  any  defense  1 

(Note :  This  rule  that  title  passes  on  delivery  to  the  carrier 
is  subject  to  the  further  rule  that  the  goods  shipped  must  fulfill 
the  contract.  If  the  goods  are  defective,  or  do  not  correspond 
to  description,  or  are  insufficient  in  quantity,  the  buy^r  may 
reject  them.) 


510  SALES 

Case  No.  300.    Carthage  v.  Duvall,  202  111.  234. 

Facts:  The  City  of  Carthage  by  ordinance  made  illegal 
a  sale  of  liquor  in  less  quantities  than  five  gallons,  and 
subjected  the  offender  to  a  penalty.  One  Skidmore,  a  resi- 
dent of  Carthage,  ordered  a  gallon  of  whiskey  from  the 
Dallas  Transportation  Co.,  dealing  in  liquor  at  Burling- 
ton, Iowa.  The  company  sent  it  by  express,  Collect  on 
Delivery,  and  Duvall,  the  agent  of  the  express  company, 
delivered  it  in  Carthage  to  Duvall.  The  city  prosecutes 
Duvall  under  the  ordinance  mentioned. 

Point  Involved:  At  what  point  title  passes  where  un- 
ascertained goods  are  purchased  to  be  put  on  board  cars 
by  the  seller  for  delivery  to  the  purchaser.  Whether  the 
fact  that  the  shipment  is  *  *  C.  0.  D. ' '  changes  the  rule. 

Mr.  Justice  Hand  delivered  the  opinion  of  the  Court : 
ii*  #  #  rpj^  generaj  ruie  frequently  announced  by 
this  Court  is,  that  the  delivery  of  personal  property  by 
the  seller  to  a  common  carrier  to  be  conveyed  to  the  pur- 
chaser is  a  delivery  to  the  purchaser,  and  that  the  title 
to  the  property  vests  in  the  purchaser  immediately  upon 
its  delivery  to  the  carrier.  (Pike  v.  Baker,  53  111.  163; 
Ward  v.  Taylor,  56  id.  494;  Ellis  v.  Roche,  73  id.  280.) 
Whether  such  rule  applies  where  the  property  is  con- 
signed C.  O.  D.  is  an  open  question  in  this  court,  but 
upon  principle  and  authority,  where,  as  here,  every- 
thing which  the  seller  has  to  do  with  the  property 
has  been  done  at  the  time  it  is  delivered  to  the  car- 
rier, we  see  no  reason  why  the  title  does  not  vest  in 
the  purchaser  immediately  upon  its  delivery,  although  it 
is  consigned  C.  O.  D.,  or  why  the  same  rule  should  not 
be  applied  to  intoxicating  liquor  that  is  applied  to  other 
classes  of  personal  property.  In  several  states  (State  v. 
O'Neil,  58  Vt.  140;  State  v.  United  States  Express  Co.,  70 
Iowa,  271;  State  v.  Wingfield,  115  Mo.  428)  the  courts 
hold  that  the  title  to  intoxicating  liquor  when  it  is  con- 
signed C.  O.  D.  does  not  vest  in  the  purchaser  until  it  is 
received,  accepted  and  paid  for.  The  great  weight  of  au- 
thority, however,  is  the  other  way.     *     *     *     From  an 


TRANSFER  OF  TITLE  511 

examination  of  the  authorities  cited  in  the  briefs,  and  such 
other  authorities  as  we  have  been  able  to  find  bearing 
upon  the  subject,  we  have  reached  the  conclusion  that  the 
sale  to  Skidmore  was  completed  when  the  liquor  was  de- 
livered to  the  express  company  in  Burlington,  and  that 
no  sale  of  liquor  was  made  by  the  defendant  to  Skidmore 
in  the  City  of  Carthage." 

Question  300:  (1.)  When  goods  are  sent  by  a  carrier  C. 
0.  D.,  does  title  pass  on  delivery  to  the  carrier,  provided  it 
would  have  passed  had  the  goods  not  been  sent  C.  O.  D.? 

(2.)  Does  the  fact  that  the  goods  shipped  are  intoxicating 
liquors  change  the  rule  ? 

Sec.  232.  Rules  Determining  Intention — Where  Seller  Is 
to  Deliver  at  Particular  Place. 

Case  No.  301.   Uniform  Sales  Act,  Sec.  19,  Rule  5. 

"  [Unless  a  different  intention  appears.]  If  a  contract 
to  sell  requires  the  seller  to  deliver  the  goods  to  the 
buyer  or  at  a  particular  place,  or  to  pay  the  freight  or 
cost  of  transportation  to  the  buyer,  or  to  a  particular 
place,  the  property  does  not  pass  until  the  goods  have 
been  delivered  to  the  buyer  or  reached  the  place  agreed 
upon." 

Case  No.  302.  Dentzel,  Adm'r,  of  G.  A.  Dentzel,  De- 
ceased, v.  Island  Park  Asso.  and  others,  229  Pa.  403,  33 
L.  R.  A.  N.  S.  54. 

Facts:  Replevin  by  the  seller  of  a  carrousel  to  recover 
it  back  from  the  buyer  on  the  theory  that  title  has  not  yet 
passed  to  the  buyer.  The  carrousel  was  shipped  "f.  o.  b. 
cars,  Philadelphia"  (the  point  of  shipment),  the  buyer 
agreeing  to  pay  freight  charges.  The  contract  was  that 
the  buyer  should  pay  $5,000,  as  follows :  $250  on  signing 
the  agreement,  $2,500  on  the  erection  of  the  machine  in  the 
park,  $900  in  60  days  thereafter,  and  $950  in  90  days  there- 
after, notes  to  be  given  for  the  last  three  payments.  The 
seller  agreed  to  furnish  a  man  to  erect  and  place  the  car- 


512  SALES 

rousel  in  order.  The  seller  asserted  dominion  over  the 
property  after  it  reached  its  destination,  and  seeks  to  re- 
cover it  back  in  this  suit,  claiming  that  title  has  not  yet 
passed. 

Point  Involved:  When  title  passes  where  goods  are 
shipped  f .  o.  b.  point  of  shipment  to  the  buyer.  Whether 
the  fact  that  the  goods  are  not  yet  paid  for  affects  the 
rule. 

Stewakt,  J.:  "It  is  a  general  rule,  not  to  be  ques- 
tioned, that  when  the  contract  in  a  sale  of  personal  prop- 
erty calls  for  delivery  f .  o.  b.  at  some  particular  place,  and 
the  seller  there  delivers  the  article  in  accordance  with  the 
stipulations,  the  title  to  the  property  at  once  passes  to 
the  buyer,  unless  otherwise  provided.  Schmertz  v. 
Dwyer,  53  Pa.  335 ;  Bacharach  v.  Chester  Freight  Line, 
133  Pa.  414,  19  Atl.  409 ;  Dannemiller  v.  Kirkpatrick,  201 
Pa.  218,  50  Atl.  928.  The  rule  yields  where  the  contract 
reserves  to  the  seller  the  right  of  property,  notwithstand- 
ing the  delivery  to  the  carrier.  Since  delivery  is  after  all 
a  matter  of  intention  on  the  part  of  the  seller,  even  though 
the  contract  calls  for  delivery  f.  o.  b.  cars  at  a  designated 
place  of  shipment,  the  seller  may,  before  the  delivery  on 
board  the  cars,  stipulate  with  the  carrier  that  the  latter  is 
to  carry  it  for  him,  thereby  making  the  carrier  the  seller 's 
agent  in  receiving  the  property.  This  follows  when  the 
seller  takes  from  the  carrier  a  bill  of  lading  which  secures 
the  shipper  against  delivery,  at  the  point  of  destination, 
to  anyone  except  upon  his  order.  When  the  contract, 
however,  as  here,  shows  an  agreement  to  deliver  f.  o.  b., 
with  nothing  to  qualify  it,  the  law  will  presume  a  deliv- 
ery to  have  been  in  accordance  with  the  stipulations,  and 
cast  the  burden  on  the  seller  if  he  assert  the  contrary. 
There  is  not  a  particle  of  evidence  in  the  case  that  this 
burden  was  discharged.  *  *  *"  [The  Court  ordered 
judgment  entered  for  the  defendant.] 

Question  302:  (1.)  What  bearing  do  the  words  "free  on 
board ' '  have  on  the  determination  of  the  question  ? 


TRANSFER  OF  TITLE  513 

(2.)  Do  such  (or  similar)  words,  as  a  matter  of  law,  cause 
title  to  vest  at  a  certain  point? 

(3.)  How  may  the  seller  expressly  prevent  the  buyer  from 
obtaining  title  at  the  place  at  which  the  goods  are  f .  o.  b.,  not- 
withstanding the  rule  stated  ?    (See  next  case.) 

(4.)  A  and  B  make  an  agreement  whereby  A  sells  to  B  a 
certain  quantity  of  rye,  f.  o.  b.  cars  at  Bronson  Station.  The 
rye  deteriorates  while  in  transit  to  the  station,  without  fault  of 
the  seller.  B  sues  A  for  breach  of  warranty.  Who  will  win? 
(Drews  et  al.  v.  Ann  River  Logging  Co.,  53  Minn.  199.) 

(5.)  A  sold  B  goods  f.  o.  b.  point  of  destination.  The  goods 
are  lost  during  transit.  As  between  seller  and  buyer,  on  whom 
will  loss  fall  ?     (Hunter  Bros.  Mill  Co.  v.  Kramer,  71  Kan.  468.) 

B.    Reservation  of  Title  by  Means  of  Documents  of  Title. 

« 

Sec.  233.    Title  Reserved  in  Bill  of  Lading. 

Case  No.  303.    Uniform  Sales  Act,  Sec.  20. 
(See  page  590,  post.) 

Question  303:  Enumerate  the  various  ways  by  which  a  seller 
may  retain  title  in  himself  by  the  form  or  disposition  of  the  bill 
of  lading. 

Case  No.  304.  Greenwood  Groc.  Co.  v.  Canadian 
County  Mill  Co.,  76  S.  C.  450. 

Facts:  The  defendant,  Canadian  County  Mill  &  Ele- 
vator Company,  incorporated  under  the  laws  of  Okla- 
homa, contracted  to  sell  and  deliver  to  plaintiff,  Green- 
wood Grocery  Company,  at  Greenwood,  South  Carolina, 
250  barrels  of  flour  at  $4.50  per  barrel.  The  defendant 
consigned  to  the  plaintiff  .the  flour,  and  sent  draft  on 
plaintiff,  with  bill  of  lading  attached,  to  Bank  of  Green- 
wood, but  the  draft  required  payment  of  $5.50  per  barrel 
instead  of  $4.50.  Plaintiffs  tendered  the  price  of  $4.50 
which  the  bank  refused  to  accept.  Plaintiff  thereupon 
brought  an  action  against  the  defendant  for  damages  for 
breach  of  contract.  In  order  to  secure  service  of  process 
upon  defendant  in  South  Carolina  to  give  the  South  Caro- 


514  SALES 

lina  courts  jurisdiction,  rather  than  to  go  to  Oklahoma  to 
begin  suit,  the  plaintiff  attached  the  flour  on  the  ground 
that  it  was  the  property  of  the  defendant  and  therefore, 
because  defendant  had  property  in  South  Carolina,  suit 
might  be  brought  against  it  there.  Defendant  contended 
that  it  had  no  property  in  South  Carolina  and  no  service 
could  in  that  way  be  secured  upon  it  in  South  Carolina, 
but  that  the  proceedings  were  void  and  should  be  dis- 
missed. 

Point  Involved:  Generally  how  title  may  be  retained 
by  the  seller  by  the  form  or  disposition  the  bill  of  lading, 
notwithstanding  delivery  of  the  goods  to  carrier  for  ship- 
ment to  buyer. 

Woods,  J.,  delivered  the  opinion  of  the  Court : 
"The  sole  question,  therefore,  is  whether  by  drawing 
on  the  plaintiff  with  the  bill  of  lading  attached  to  the 
draft  and  refusing  to  deliver  the  bill  of  lading  without 
payment  of  the  draft,  the  defendant  retained  title  and 
right  of  possession  of  the  property.  The  effect  of  a  bill 
of  lading  issued  by  the  carrier,  who  is  a  third  party,  on 
the  title  to  the  property  as  between  the  consignor  and 
consignee  is  a  question  of  fact  depending  not  only  on 
the  terms  of  the  paper  itself,  but  on  the  intention  of  the 
parties  as  expressed  by  their  dealings  with  each  other. 
*  *  *  The  fact  that  the  bill  of  lading  is  taken,  making 
the  goods  deliverable  to  the  order  of  the  vendor,  who  is 
himself  the  consignor,  is  very  strong  prima  facie  evidence 
that  the  vendor  in  delivering  the  goods  to  the  carrier 
intended  to  reserve  the  title  until  payment  of  the  pur- 
chase money ;  and  when  a  draft  for  the  price  is  drawn  on 
the  purchaser  with  such  bill  of  lading  attached,  the 
title  does  not  ordinarily  pass  to  him  until  the  draft  is 
paid.  *  *  *  But  this  presumption  may  be  rebutted 
by  other  circumstances  and  previous  dealing  of  the  par- 
ties evidencing  a  different  intention.     *     *     * 

' '  In  this  case,  however,  it  seems  by  the  terms  of  the  bill 
of  lading  the  goods  were  deliverable  to  the  consignee. 


TRANSFER  OF  TITLE  515 

The  presumption,  therefore,  was  that  the  consignor  in- 
tended the  title  to  pass.  *  *  *  If,  therefore,  the  rail- 
road company  had  delivered  the  goods  to  the  consignee 
without  the  surrender  of  the  bill  of  lading  and  without 
notice  of  any  reservation  of  title  and  possession,  it  would 
not  be  liable  to  the  consignor,  though  he  actually  intended 
to  reserve  the  title  and  possession  until  payment  of  his 
draft  for  the  price.  *  *  *  As  between  the  vendor 
and  purchaser,  the  authorities  leave  no  room  to  doubt, 
however,  that,  even  if  the  bill  of  lading  provides  for  de- 
livery to  the  consignee,  yet,  if  the  consignor  draws  for 
the  price,  attaching  the  bill  of  lading  to  the  draft,  this 
is  sufficient  evidence  of  his  intention  to  reserve  the  title 
and  right  of  possession  until  the  draft  is  paid,  and  the 
consignee  is  not  entitled  to  the  goods  until  payment. 
*  *  *  Here  *  *  *  not  only  did  the  defendant,  the 
consignor,  express  its  intention  to  reserve  the  jus  dis- 
ponendi  by  presenting  through  a  bank  the  draft  with  the 
bill  of  lading  attached,  the  plaintiff  expressed  this  to  be 
also  its  understanding  of  the  contract  by  offering  to 
pay  the  price,  as  it  claimed  it  to  be,  as  a  condition  prece- 
dent to  acquiring  possession  of  the  bill  of  lading,  and 
through  it  of  the  flour. 

1 'It  is  argued,  however,  that,  according  to  the  com- 
plaint, which  must  be  taken  as  true,  the  plaintiff  ten- 
dered the  real  price  agreed  upon,  and  that  by  such  ten- 
der he  became  entitled  to  the  flour  without  respect  to 
the  amount  of  the  draft.  This  argument  is  not  without 
force,  but  it  is  not  convincing,  nor  is  it  sustained  by 
authority. ' ' 

Question  304:  (1.)  In  what  ways  may  the  seller  reserve  his 
title  so  that  it  will  not  pass  on  delivery  to  the  carrier?  How 
was  it  done  in  this  case? 

(2.)  If  the  carrier  had  had  no  notice  of  the  reservation  of 
title  in  this  case  and  had  delivered  the  goods  to  the  consignee, 
would  it  have  been  liable?  Suppose  the  sender  had  used  an 
"order"  bill  of  lading,  would  your  answer  be  the  same? 


516  SALES 

C.    Transfer  of  Title  in  Auction  Sales. 

§  234.  General  rules  governing  sales      §  236.  Sales  without  reserve. 

by  auction.  §  237.  Fraudulent  bids. 

§  235.  General      rule      when      title 

passes. 

Sec.  234.   General  Rules  Governing  Sales  by  Auction. 

Case  No.  305.   Uniform  Sales  Act,  Sec.  21. 
(See  page  591,  post.) 

Sec.  235.    General  Rule  When  Title  Passes  in  Auction 

Sales. 

Case  No.  306.  Anderson  v.  Wisconsin  Ry.  Co.,  107 
Minn.  296. 

Facts:  The  Wisconsin  Central  R.  R.  Co.  advertised 
certain  buildings  for  sale  to  be  removed  from  certain 
lands  taken  under  condemnation  proceedings.  One 
Anderson  attended  the  sale,  making  certain  bids  and  he 
was  outbid  by  a  person  who  offered  $675.00.  Anderson 
then  bid  $680.00,  but  the  auctioneer  refused  to  accept  it 
on  the  ground  that  the  raise  was  too  small,  and  pro- 
ceeded to  sell  the  property  to  the  last  bidder  at  $675.00. 
Anderson  sues  the  R.  R.  Co.  claiming  damages,  contend- 
ing that  the  advertisements  of  the  sale  constituted  an 
offer  which  was  accepted  by  the  highest  bidder  at  the 
sale  and,  therefore,  that  a  contract  between  the  parties 
became  complete  when  Anderson  bid  $680.00. 

Point  Involved:  When  and -how  is  a  contract  of  sale 
made  where  goods  are  sold  at  auction?  Is  the  bid  an 
offer  or  an  acceptance? 

Elliott,  J.:  "The  custom  of  selling  goods  at  auc- 
tion is  as  old  as  the  law  of  sale.  In  Rome  military 
spoils  were  disposed  of  at  the  foot  of  the  spear — sub 
hastio — by  auction,  or  increase.  In  later  times  we  find 
a  mode  of  auction  called  a  'sale  by  the  candle,'  or  by  the 
'inch  of  candle,'  which  consisted  of  offering  the  prop- 


AUCTION  SALES  517 

erty  for  sale  for  such  a  length  of  time  as  would  suffice 
for  the  burning  of  an  inch  of  candle.     *     *     * 

"In  view  of  the  general  prevalence  of  the  custom  of 
selling  by  auction,  it  is  remarkable  that  no  very  early 
cases  are  found  in  the  English  reports.  The  parent  case 
of  Payne  v.  Cave,  3  T.  R.  148,  was  decided  by  Lord  Ken- 
yon,  Ch.  J.,  sitting  at  Guildhall  in  1788.  The  plaintiff 
offered  a  distilling  apparatus  for  sale,  including  a  pewter 
worm,  at  public  auction,  on  the  usual  conditions  that 
the  highest  bidder  should  be  the  purchaser.  There  were 
several  bidders  for  the  worm,  of  whom  Cave,  who  bid 
£40,  was  the  last.  The  auctioneer  dwelt  on  this  bid  for 
some  time,  until  Cave  said:  'Why  do  you  dwell?  You 
will  not  get  more.'  The  auctioneer  stated  that  he  was 
informed  that  the  worm  weighed  at  least  1,300  hundred- 
weight, and  was  worth  more  than  £40.  The  bidder  then 
asked  him  if  he  would  warrant  it  to  weigh  so  much,  and 
receiving  an  answer  in  the  negative,  he  declared  that  he 
would  not  take  it.  The  worm  was  then  resold  on  a  sub- 
sequent day  for  £30,  and  an  action  was  brought  against 
Cave  for  the  difference.  Lord  Kenyon  ruled  that  the 
bidder  was  at  liberty  to  withdraw  his  bid  at  any  time 
before  the  hammer  fell,  and  non-suited  the  plaintiff. 
On  motion  to  set  aside  the  non-suit,  it  was  contended 
that  a  bidder  is  bound  by  the  conditions  of  the  sale  to 
abide  by  his  bid,  and  could  not  retract ;  that  the  hammer 
is  suspended,  not  for  the  benefit  of  the  bidder,  or  to  give 
him  an  opportunity  for  repenting,  but  for  the  benefit  of 
the  seller ;  and  that  in  the  meantime  the  person  who  bid 
last  is  a  purchaser,  conditional  upon  no  one  bidding 
higher.  But  the  Court  thought  otherwise,  and  held  that 
the  auctioneer  was  the  agent  of  the  vendor,  and  that 
the  assent  of  both  parties  was  necessary  to  make  the 
contract  binding,  and  'that  is  signified  on  the  part  of 
the  seller  by  knocking  down  the  hammer,  which  was 
not  done  here  until  the  plaintiff  had  retracted. '  'An 
auction,'  said  the  Court,  'is  not  inaptly  called  a  locus 
poenitentiae.  Every  bidding  is  nothing  more  than  an 
offer  on  one  side,  which  is  not  binding  on  either  side  until 


518  SALES 

assented  to.'  (Here  the  Court  reviews  numerous 
authorities.)  *  *  *  On  principle  and  authority  the 
correct  rule  is,  that  an  announcement  that  a  person  will 
sell  his  property  at  public  auction  to  the  highest  bidder 
is  a  mere  declaration  of  intention  to  hold  an  auction  at 
which  bids  will  be  received ;  that  a  bid  is  an  offer  which 
is  accepted  when  the  hammer  falls ;  and  until  the  accept- 
ance of  the  bid  is  signified  in  some  manner  neither  party 
assumes  any  legal  obligation  to  the  other.  At  any  time 
before  the  highest  bid  is  accepted,  the  bidder  may  with- 
draw his  offer  to  purchase,  or  the  auctioneer  his  offer 
to  sell.  The  owner's  offer  to  sell  is  made  at  the  time 
through  the  auctioneer,  and  not  when  he  advertises  the 
auction  sale.  A  merchant  advertises  that  on  a  certain 
day  he  will  sell  his  goods  at  bargain  prices ;  but  no  one 
imagines  that  the  prospective  purchaser,  who  visits  the 
store,  and  is  denied  the  right  to  purchase,  has  an  action 
for  damages  against  the  merchant.  He  merely  offers  to 
purchase,  and  if  his  offer  is  refused,  he  has  no  remedy 
although  he  may  have  lost  a  bargain,  and  have  incurred 
expense  and  lost  time  in  visiting  the  store.  The  analogy 
between  such  a  transaction  and  an  auction  is  at  least 
close.  As  the  advertisement  in  this  case  was  a  mere 
statement  of  intention  to  offer  the  property  for  sale  at 
public  auction  to  the  highest  bidder,  the  respondent's 
bid  did  not  complete  either  a  contract  of  sale  or  a  con- 
tract to  make  a  sale." 

Question  306:  (1.)  State  the  facts*  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  What  were  the  facts  and  the  Court's  decision  in  Payne 
v.  Cave? 

Sec.  236.    Sales  Advertised  to  Be  Without  Reserve. 

(Note :  This  provision  of  the  Uniform  Sales  Act  follows  the 
statutes  already  in  force  in  a  few  of  the  states.  But  such  is  not 
the  law  in  most  states  except  as  they  adopt  the  Uniform  Sales 
Act,  with  this  provision.) 


AUCTION  SALES  519 

Sec.  237.    Fraudulent  Bids  in  Auction  Sales. 

Case  No.  307.  Pennock's  Appeal,  14  Pa.  St.  446. 

Facts:  Sale  of  land  by  an  administrator  at  public 
auction  under  order  of  court.  Bid  in  and  sold  to  Abra- 
ham Pennoch  and  Jas.  Sellers,  Jr.,  who  now  file  excep- 
tions to  the  report  of  the  administrator  alleging  that 
they  bid  the  sums  reported  by  him  by  reason  of  the  puff- 
ing and  false  bids  of  other  persons,  in  connivance  with 
the  administrator. 

Point  Involved:  Whether  secret  bidding  by  the  owner 
or  his  agent,  is  fraudulent. 

Gibson,  C.  J. :  "It  is  impossible  to  doubt  the  principle 
of  the  civil  law  adopted  by  Lord  Mansfield,  in  Bexwell  v. 
Christie.  Good  faith  is  an  indispensable  ingredient  of 
fair  dealing;  and  it  is  impossible  to  imagine  a  purpose, 
consistent  with  it,  for  which  sham  bidding  is  necessarily 
employed.  The  vendor  may  prescribe  conditions  of  sale 
which  will  enable  him  to  retain  the  property  should  it 
not  come  up  to  his  price;  and  if  he  do  not  produce  the 
effect  openly,  why  should  he  do  it  covertly!  Common 
honesty  requires  that  all  should  be  fair  and  above-board. 
To  screw  up  the  price,  as  it  has  been  aptly  termed,  by 
secret  machinery,  can  be  no  less  than  a  fraud;  and  a 
sham  bidder  can  be  used  for  no  other  purpose.  The 
decisions  on  the  subject  have  fluctuated ;  but  the  largest 
license  allowed  in  any  of  them  has  been  to  employ  a 
single  puffer;  yet,  whether  there  be  one,  or  whether 
there  be  twenty,  the  mischief  is  the  same,  except  as  to  the 
degree  of  it.  It  has  been  said  that  the  employment  of 
a  plurality  discloses  too  clearly  to  be  mistaken,  not  a 
design  to  protect  the  property  from  being  sacrificed,  but 
to  give  an  artificial  impulse  to  the  sale  of  it.  That 
touches  the  honesty  of  the  vendors 's  motive;  but  what 
have  the  bidders  to  do  with  it?  Should  he  actually  think 
that  not  less  than  twenty  could  protect  it,  the  sale  would 

still  be,  according  to  all  the  cases,  fraudulent  and  void. 

*     #     *  >> 


520  SALES 

Question  307:    What  is  "by-bidding"?     Why  is  it  deemed 
unlawful  ? 

D.    Risk  of  Loss. 

§  238.  The  general  rules.  Risk  at-  sion,  retains  title  for  pur- 
tends  title.  poses  of  security. 

§  239.  Risk    of    loss    where    seller,  §  240.  Risk  of  loss  in  sales  on  ap- 

though    delivering  .posses-  proval. 

Sec.  238.  The  General  Rules— Risk  Attends  Title. 

Case  No.  308.    Uniform  Sales  Act,  Sec.  22. 
(See  page  591,  post.) 

Question  308 :     (1.)     State  generally  with  whom  is  the  risk  of 


(2.)  When  is  risk  on  buyer,  notwithstanding  title  has  been 
retained  by  seller? 

(Note:     See  cases  on  transfer  of  title,  supra.) 

Sec.  239.    Risk  of  Loss  Where  Seller  Though  Delivering 
Possession  Retains  Title  for  Purpose  of  Security. 

Case  No.  309.    Burley  v.  Tufts,  66  Miss.  48. 

Facts:  Tufts  sold  Burnley  a  soda  water  fountain  on 
installments,  title  to  remain  in  Tufts  until  the  last  install- 
ment was  paid.  Before  the  last  installment  became  due, 
the  soda  water  fountain  was  destroyed  by  fire  without 
the  fault  of  either.  Burnley  claimed  that  he  was  not 
liable  to  Tufts  for  the  last  installment,  as  Tufts  still 
held  the  legal  title,  and  therefore  risk  of  loss  from  fire 
was  on  him. 

Point  Involved:  Upon  whom  is  the  risk  of  loss  in  a 
sale,  in  which  possession  is  delivered  to  the  purchaser, 
title  being  reserved  in  the  seller  for  purposes  of  security. 

Cooper,  J.,  delivered  the  opinion  of  the  Court :  ' '  Burn- 
ley unconditionally  and  absolutely  promised  to  pay  a  cer- 
tain sum  for  the  property,  the  possession  of  which  he 


RISK  OF  LOSS  521 

received  from  Tufts.  The  fact  *  *  *  (of  destruc- 
tion) does  not  relieve  him  of  payment  of  the  price 
agreed  upon.  *  *  *  The  transaction  was  something 
more  than  an  executory  conditional  sale.  The  seller 
had  done  all  he  was  to  do  except  receive  the  purchase 
price;  the  purchaser  had  received  all  he  was  to  receive. 
*  *  *  The  contract  made  *  *  *  imposed  upon 
the  buyer  an  absolute  promise  to  pay." 

Question  309:     State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Sec.  240.    Risk  of  Loss  in  Sales  on  Approval. 

Case  No.  310.    Foley  v.  Felrath,  98  Ala.  176. 
(Set  out  as  Case  No.  291,  supra.) 

Question  310:    On  whom  was  risk  of  loss  in  this  case ?    Why? 

Case  No.  311.    Pence  v.  Carney,  78  Ark.  123. 
(Set  out  as  Case  No.  292,  supra.) 

Question  311 :     On  whom  was  risk  of  loss  in  this  case  ?    Why  ? 


CHAPTER  FORTY-ONE 

TRANSFER  OF  TITLE  AS  AFFECTING  THIRD 
PERSONS 

A.  Estoppel   of   true   owner  to   as-      C.  Sale  by  one  having  voidable  title. 

sert  title.  D.  Retention  of  possession. 

B.  Provisions     of     recording     acts, 

factors'  acts,  etc. 

A.    ESTOPPEL  OF  TRUE  OWNER  TO  ASSERT 
TITLE. 

§  241.  Only  true  owner  can  give  §  243.  Allowing  another  to  assert 
title.  ownership  as  estoppel. 

§  242.  Mere  possession  given  to  an-  §  244.  Clothing  another  with  docu- 
other  no  estoppel.  mentary  or  record  indicia 

of  title  as  estoppel. 

Sec.  241.  Only  True  Owner  Can  Give  Title. 

Case  No.  312.    Uniform  Sales  Act,  Sec.  23. 
(See  page  591,  post.) 

Question  312:  Generally  speaking,  can  anyone  except  the 
owner  of  goods  transfer  title  thereto  (by  himself  or  through 
agent)  ? 

Sec.  242.   Mere  Possession  Given  to  Another  No  Estoppel. 

Case  No.  313.    Fawcett  v.  Osborne,  32  HI.  411. 

Facts:  This  was  a  suit  at  law  brought  to  obtain  the 
value  of  2,000  sides  of  hemlock  tanned  sole  leather.  Faw- 
cett, Isham  &  Co.,  had  made  a  contract  with  W.  H.  &  F. 

522 


ESTOPPEL  OF  OWNER  523 

Stevens,  by  which  the  latter,  who  operated  a  tannery, 
were  to  tan  leather  for.  F.  I.  &  Co.  The  hides  when 
tanned  were  to  be  delivered  to  F.  I.  &  Co.  at  New  York 
City.  In  September,  1856,  Fletcher  Stevens,  of  the 
Stevens  firm,  shipped  secretly,  a  large  quantity  of  the 
leather  manufactured  from  the  plaintiff's  hides  to  places 
other  than  New  York  City.  Two  thousand  sides  of  this 
leather  were  shipped  to  Chicago,  and  there  sold  by  a 
man  who  was  in  connivance  with  Stevens,  to  the  defend- 
ant who  made  payment  therefor.  Plaintiffs  having 
traced  the  leather  into  the  hands  of  defendants  demanded 
its  return,  which  was  refused.  The  defense  made  is  that 
the  purchase  under  the  circumstances  to  defendants 
vested  title  in  them. 

Point  Involved:  Whether  the  fact  that  the  owner  of 
the  goods  put  the  goods  in  the  possession  of  a  bailee  to 
do  work  thereupon  estopped  such  owner  to  assert  title 
against  an  innocent  purchaser  to  whom  such  bailee  in 
violation  of  his  duty  sold  the  goods. 

Mr.  Justice  Breese  delivered  the  opinion  of  the  Court : 
i  i  *  *  *  rpiie  defendants  contend  that  they  bought  the 
property  in  good  faith,  in  the  regular  course  of  business, 
paying  a  full  price  in  open  market,  and  with  no  knowledge 
of  a  want  of  title  in  their  vendor,  in  whose  possession  the 
property  was,  when  purchased  by  them.  *  *  * 
Assuming  a  name  which  did  not  belong  to  him,  and 
inducing  his  agent,  Stanton,  to  do  the  same,  the  defend- 
ants' vendor  took  this  leather  to  Chicago,  and  there, 
unknown  to  the  business  men  of  that  city,  or  to  his  ven- 
dee, the  defendant  here,  with  no  evidence  of  title,  docu- 
mentary or  mercantile,  relying  on  his  bare  possession, 
fraudulently,  if  not  feloniously  obtained,  the  defendants 
become  the  purchasers  of  two  thousand  hides,  of  the  esti- 
mated value  of  near  eight  thousand  dollars.  The  ordi- 
nary inquiries  and  caution,  usually  exhibited  in  a  large 
sale  like  this,  seem  not  to  have  been  made  or  observed 
in  this  transaction,  and  the  question  is  plainly  and  dis- 
tinctly raised,  'Has  the  real  owner  lost  his  title  to  the 


524  SALES 

property  by  the  force  of  the  facts  proved?'  *  *  * 
we  are  satisfied  that  the  plaintiffs  had  never  parted  with 
the  property  in  this  leather,  or  bestowed  the  possession 
of  it  upon  anyone,  with  a  view  to  a  sale  and*  disposal  of 
it;  nor  have  they  given  *  *  *  such  evidence  of  a 
right  to  sell  it,  as  according  to  the  custom  of  trade,  and 
the  understanding  of  community  usually  accompanies  the 
authority  for  disposal.  The  defendant's  vendor  had  but 
a  naked  possession.  This  cannot  prevail  against  the 
right  of  the  real  owner,  who  is  entitled  to  follow  his 
property,  and  reclaim  it  wherever  found.  The  buyer 
should  have  '  taken  care '  that  the  title  was  in  his  vendor, 
— he  having  no  title,  the  defendants  acquired  none. 

"The  rule  we  have  sanctioned  may  seem  a  rigid  one, 
and  may  involve  purchasers  in  some  perils,  but  it  is  a 
safeguard  to  the  protection  of  the  owners '  rights  in  goods 
and  other  property  necessarily  placed  under  the  tem- 
porary control  of  others,  and  in  their  legal,  though  qual- 
ified possession." 

Question  313:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Case  No.  314.    Charles  Moe  Co.  v.  J.  H.  Logue  Co.,  108 
111.  Ap.  128. 
Facts:   The  facts  appear  in  the  opinion. 

Mr.  Presiding  Justice  Ball  delivered  the  opinion  of 
the  Court :  ' "  *  *  *  October  18, 1901,  Logue,  the  pres- 
ident of  appellee,  gave  a  diamond  to  one  Stein,  to  show 
to  a  prospective  customer.  It  was  not  given  Stein  to 
sell.  He  was  to  return  it  at  2  p.  m.  of  the  same  day,  as 
another  customer  had  the  refusal  of  it.  Instead  of  car- 
rying out  this  agreement  Stein  pawned  the  stone  to 
appellant  for  $100.  Logue  made  demand  on  appellant 
for  its  return.  The  latter  refused  to  comply  unless  the 
sum  it  had  loaned  upon  the  diamond  was  repaid.  There- 
upon appellee  brought  replevin,  and  recovered  a  judg- 
ment for  $160,  from  which  judgment  this  appeal  was 
taken. 


ESTOPPEL  OF  OWNER  525 

"It  is  an  elementary  rule  of  the  law  of  personal  prop- 
erty that  no  man  can  be  deprived  of  it  without  his  con- 
sent, or  by  operation  of  law.  Another  fundamental  rule 
is  that  no  one  can  sell  a  right  which  he  does  not  have ; 
that  the  purchaser  takes  nothing  more  than  the  rights 
of  his  vendor.  With  us  the  exceptions  to  this  last  rule 
arise  only  where  the  property  is  money  or  negotiable 
paper.  In  all  other  cases  the  purchaser  cannot  retain 
the  property  as  against  the  owner  unless  it  appear  that 
the  seller,  by  sale  and  delivery  to  him,  though  induced 
by  fraudulent  pretenses,  had  the  indcia  of  title.  Posses- 
sion of  personal  property  is  indicative  of  title,  but  it  is 
not  title;  and  that  alone  will  not  protect  the  purchaser 
from  the  effects  of  a  demand  by  the  real  owner." 

Question  314:  (1.)  State  the  faets,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  A  was  a  jeweler.  B  asked  him  to  let  him  take  two 
diamond  rings  to  his  wife  to  see  if  she  liked  either  one  of  them, 
and  he  would  return  them  in  two  hours.  B  took  the  rings  under 
this  arrangement  and  pawned  them  to  C.  A  brings  replevin 
against  C.  Can  he  recover?  (Hatowski  v.  Cassriel,  153  111.  Ap. 
239.) 

(3.)  A  having  a  diamond  ring  he  wished  to  sell,  entrusted 
it  to  B,  a  street  jewelry  peddler,  asking  B  to  match  it,  or  if  he 
could  not  do  so,  to  obtain  an  offer  for  it  (giving  the  jeweler  no 
express  authority  to  sell  it).  B  sold  the  stone  wrongfully  to  C, 
and  absconded  with  the  money.  A  brings  replevin  against  C. 
Can  he  recover?    (Levi  v.  Booth,  58  Md.  305.) 

Case  No.  315.   Biggs  v.  Evans  (1894),  1  Q.  B.  88. 

Facts:  The  plaintiff  was  the  owner  of  an  opal  matrix 
table-top  which  he  intrusted  to  an  agent  who  was  a  dealer 
in  jewels  and  gems,  and  as  a  known  part  of  his  business 
sold  jewels  and  gems  for  other  people.  The  table  top  was 
intrusted  to  the  agent  on  the  terms  it  should  not  be  sold 
to  any  person  nor  at  any  price  without  the  plaintiff's 
authority  and  that  the  check  received  in  payment  should 
be  handed  to  the  plaintiff  intact. 

Point  Involved:     Whether  placing  an  article  in  the 


526  SALES 

hands  of  a  dealer  in  such  articles,  who  also  sells  them 
for  other  people,  to  show  to  customers  and  secure  offers 
thereon,  estops  the  true  owner  to  set  up  his  title  as 
against  one  to  whom  such  article  is  sold  in  violation  of 
authority. 

Wills,  J.,  delivered  the  opinion  of  the  Court: 
<<*  #  *  jn  one  sense  every  person  who  intrusts  an 
article  to  any  person  who  deals  in  second-hand  articles 
of  that  description  enables  him,  if  so  disposed,  to  com- 
mit a  fraud  by  selling  it  as  his  own.  A  man  who  lends  a 
book  in  a  second-hand  bookseller  puts  it  into  his  power 
in  the  same  sense,  to  sell  it  as  his  own.  A  man  who  in- 
trusts goods  for  safe  custody  to  a  wharfinger,  who  also 
deals  in  his  own  goods,  or  in  other  people's  goods 
intrusted  to  him  for  sale,  in  such  a  sense  enables  him  to 
commit  a  fraud  by  selling  them  to  a  customer.  But  such 
a  transaction  clearly  could  not  give  a  title  to  a  purchaser 
as  against  the  owner." 

Question  315:  State  the  facts  and  the  question  presented  and 
the  Court's  decision  in  the  above  case,  giving  the  illustrations 
stated  by  the  Court. 

Sec.  243.    Allowing  Another  to  Assert  Ownership  as 

Estoppel. 

Case  No.  316.    O'Connor  v.  Clarke,  170  Pa.  318. 

This  was  an  action  brought  to  recover  possession  of 
a  wagon  belonging  to  John  CFConnor,  and  purchased  by 
the  defendant,  Clarke,  from  one  Tracy  who  was  in  pos- 
session of  it.  The  evidence  showed  that  Tracy  was  in 
possession  of  the  wagon  and  had  his  name  and  occupa- 
tion painted  thereon,  thus,  "  George  Tracy,  Piano 
Mover,"  and  that  the  owner,  O'Connor,  had  directed 
this  to  be  done  and  knew  it  was  done,  and  that  he  did  it 
for  the  purpose  of  creating  an  impression  in  the  public 
that  the  property  belonged  to  Tracy. 

Point  Involved:    Whether  an  owner  is  estopped  to 


ESTOPPEL  OF  OWNER  527 

assert  title  by  allowing  another  who  is  in  possession  of 
his  personal  property,  to  assert  title  to  such  property, 
as  against  one  who  purchases  such  property  in  reliance 
on  such  permitted  assertions. 

Sterrett,  C.  J.,  delivered  the  opinion  of  the  Court: 
"While  the  soundness  of  the  general  rule  of  law  that  a 
vendee  of  personal  property  takes  only  such  title  or 
interest  as  his  vendor  has  and  is  authorized  to  transfer 
cannot  for  a  moment  be  doubted,  it  is  not  without  its 
recognized  exceptions.  One  of  these  is  where  the  owner 
has  so  acted  with  reference  to  his  property  as  to  invest 
another  with  such  evidence  of  ownership,  or  apparent 
authority  to  deal  with  and  dispose  of  it,  as  is  calculated 
to  mislead,  and  does  mislead,  a  good  faith  purchaser  for 
value.  In  such  cases  the  principle  of  estoppel  applies, 
and  declares  that  the  apparent  title  or  authority,  for  the 
existence  of  which  the  actual  owner  was  responsible,  shall 
be  regarded  as  the  real  title  or  authority,  at  least  so  far 
as  persons  acting  on  the  apparent  title  or  authority,  and 
parting  with  value,  are  concerned.  Strictly  speaking, 
this  is  merely  a  special  application  of  the  broad  equitable 
rule  that,  where  one  of  two  innocent  persons  must  suffer 
loss  by  reason  of  the  fraud  or  deceit  of  another,  the  loss 
should  fall  upon  him  by  whose  act  or  omission  the  wrong- 
doer has  been  enabled  to  commit  the  fraud. 

Question  316:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  Suppose  that  Tracy,  in  driving  the  wagon,  had  negli- 
gently injured  a  pedestrian,  and  such  pedestrian  had  sued  0  'Con- 
nor, the  true  owner;  assuming  that  otherwise  there  was  no 
agency  or  employment,  would  the  owner  have  been  liable  ? 

Sec.  244.   Clothing  Another  With  Documentary  or  Record 
Indicia  of  Title. 

(See  also  subject  Document  of  Title.) 

Case  No.  317.  Calais  Steamboat  Co.  v.  Scudder,  2  Black. 
372. 


528  SALES 

Facts:  Scudder,  the  administrator  of  John  Van  Pelt, 
filed  a  bill  against  the  Steamboat  Company,  claiming 
title  to  13/20  of  the  steamer  Adelaide,  as  a  part  of  the 
estate  of  Van  Pelt.  Defense  was  that  the  defendants 
were  innocent  purchasers  for  value  from  one  William 
Vanderbilt  of  New  York  City.  The  evidence  showed 
that  John  Van  Pelt,  of  California,  in  1853  employed  Van- 
derbilt, an  engineer  and  constructor  of  steamers,  to  go 
to  New  York  and  there  make  contracts  and  superintend 
the  construction  of  the  steamer  in  question  with  Van 
Pelt's  money.  The  contracts  were  to  be  made  in  Van- 
derbilt 'b  name,  and  the  builder's  certificate  was  to  be 
taken  and  the  enrollment  at  the  custom  house  to  be  in 
Vanderbilt 's  name.  These  instructions  were  given  to 
Vanderbilt  by  Van  Pelt  with  the  avowed  purpose  of 
concealing  his  own  name  in  the  construction  of  the  ves- 
sel, he  not  wishing  it  to  be  known  he  had  any  interest  in 
the  vessel.  The  vessel  was  built  by  Vanderbilt  in  his 
name  pursuant  to  these  instructions.  The  Steamboat 
Company,  wishing  a  boat,  saw  this  one  advertised  in  the 
daily  papers,  and  after  the  usual  negotiations  as  to  price, 
purchased  it  for  the  sum  of  $93,000.00,  paying  down 
$88,000.00  cash. 

Point  Involved:  Whether  an  owner  who  permits 
another  to  put  the  record  or  documentary  title  in  him- 
self is  estopped  to  assert  title  as  against  innocent  third 
persons  who  purchase  for  value  in  reliance  on  such 
record  or  documentary  title. 

Mr.  Justice  Nelson  delivered  the  opinion  of  the 
Court:  "*  *  *  Upon  this  simple  statement  of  the 
case,  it  is  not  to  be  doubted  but  that  the  legal  title  to  this 
vessel  passed  to  the  purchasers,  for,  although  as  between 
Vanderbilt  and  Van  Pelt,  his  principal,  or  the  estate  of 
Van  Pelt,  the  legal  title  could  not  avail,  beyond  a  lien  for 
his  services,  or  for  any  advances,  yet,  as  it  respects  third 
persons,  who  have  bought  in  good  faith  and  for  a  val- 
uable consideration,  the  rule  is  different.  The  question 
then  arises  between  two  innocent  parties,  and  the  equity 


RECORDING  ACTS  529 

of  the  case  turns  against  the  party  who  has  enabled  his 
agent  or  any  other  person  to  hold  himself  forth  to  the 
world  as  having  not  only  possession,  but  the  usual  docu- 
mentary evidence  of  property  in  the  article.  *  *  * 
"The  case  furnishes  a  very  strong  illustration  of  this 
principle.  All  the  indicia  of  property  in  this  vessel  in 
Vanderbilt  existed  from  no  fault  of  his,  for  he  was  clothed 
with  it  by  the  express  authority  of  the  principal.  Van 
Pelt,  therefore,  took  upon  himself  knowingly  the  respon- 
sibility of  vesting  the  property  of  the  vessel  in  Vander- 
bilt, as  he  must  have  known  that  it  was  in  his  power  to 
deal  with  it  as  owner.  Besides,  he  was  extensively 
engaged  in  the  business  of  steamboats  in  the  waters  of 
California,  and  doubtless  understood,  in  point  of  fact, 
the  responsibility  he  was  assuming  *  *  *  and,  we 
may  add,  we  are  not  sorry  that  we  have  come  to  a  con- 
clusion in  favor  of  the  innocent  party  who  has  acted  upon 
the  evidence  of  the  legal  title  of  the  party  from  whom 
the  purchase  was  made  against  the  other  innocent  party 
who  had  not  only  been  instrumental  in  furnishing  this 
evidence,  but  has  industriously  concealed  his  own,  and 
thus  turned  the  equity  of  the  case  against  him.     *     *     *  " 

Question  317:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

B.    Provisions  of  Recording  Acts,  Factors'  Acts,  etc. 

§  245.  Recording  acts.  §  247.  Bulk  sales  laws 

§  246.  Factors'  acts. 

Sec.  245.    Recording  Acts. 

(Note:  The  recording  acts  of  the  various  states  cover,  par- 
ticularly, the  cases  of  chattel  mortgages  and  conditional  sales. 
It  is  provided,  with  respect  to  chattel  mortgages,  that  they  must 
be  acknowledged  before  a  certain  officer  and  recorded  in  the 
public  records  in  order  that  the  mortgagee  can  assert  his  lien 
against  innocent  purchasers  for  value,  judgment  and  attaching 
creditors  and  the  like  unless  he  takes  possession  of  the  mort- 
gaged goods. 


530  SALES 

Likewise,  in  reference  to  conditional  sales,  it  is  provided  in 
most  of  the  states  that  the  conditional  sale  in  which  the  buyer 
takes  possession  must  be  recorded  in  order  to  protect  the  seller. 
Before  the  conditional  sale  recording  acts  were  passed,  it  was 
generally  held  that  a  vendor  in  a  conditional  sale  could  assert 
his  title  against  innocent  third  persons.  See  cases  on  the  differ- 
ence between  conditional  sales  and  consignments.) 

Sec.  246.    Factors'  Acts. 

(Note :  A  factor  having  possession  of  goods  has  large  author- 
ity to  sell  them  in  accordance  with  the  customs  of  the  com- 
munity, but  though  apparently  the  owner  has  no  power  to 
pledge  the  goods  for  his  own  debts.  Many  of  the  states  have 
passed  Factor's  Acts,  varying  in  their  phraseology,  protecting 
purchasers  and  pledgees  of  factors.  See  Williston  on  Sales, 
Sections  318  ff.) 

Sec.  247.    Bulk  Sales  Laws. 

Case  No.  318.  The  G.  S.  Johnson  Co.  v.  Beloosky,  263 
111.  363. 

Facts:    Stated  in  the  opinion. 

Point  Involved:  The  constitutionality  of  the  Bulk 
Sales  Act  of  Illinois,  with  the  text  of  that  act,  and  the 
object  thereof. 

Me.  Justice  Vickebs  delivered  the  opinion  of  the 
Court:  "Ernest  Pilatt  was  engaged  in  the  baker  busi- 
ness and  used  in  connection  therewith  a  delivery  wagon 
and  a  team  of  horses.  He  made  a  bill  of  sale  covering 
his  entire  stock  in  trade,  store  fixtures  and  the  wagon  and 
team  used  in  connection  with  the  business,  to  Rossie 
Beloosky.  Subsequently  the  G.  S.  Johnson  Company, 
being  a  creditor  of  Pilatt,  levied  an  attachment  upon  the 
goods  and  chattels  sold  to  appellee,  basing  the  attach- 
ment upon  the  failure  to  comply  with  an  act  of  the  legis- 
lature known  as  the  Bulk  Sales  Act  of  1913.  It  is  admit- 
ted that  no  attempt  was  made  to  comply  with  the  act  in 
making  the  sale.  The  sole  question  presented  for  our 
determination  is  the  constitutionality  of  the  Bulk  Sales 


BULK  SALES  LAW  531 

Act  of  1913.  The  Court  below  held  the  act  to  be  invalid 
and  gave  judgment  for  the  defendant.  The  plaintiff  in 
the  attachment  proceeding  has  prosecuted  an  appeal 
direct  to  this  Court. 

"The  Bulk  Sales  Act  passed  in  1913  is  entitled,  'An 
act  to  regulate  the  sale  or  transfer  of  goods,  wares,  mer- 
chandise, or  merchandise  and  fixtures  or  other  goods  and 
tain  penalties  in  connection  therewith.'  The  act,  which 
is  found  at  page  258  in  the  Laws  of  1913,  is  as  follows : 

"  'Sec.  1.  That  the  sale,  transfer,  or  assignment  in 
bulk  of  the  major  part  or  the  whole  of  a  stock  of  mer- 
chandise, or  merchandise  and  fixtures  or  other  goods  and 
chattels  of  the  vendor's  business,  otherwise  than  in  the 
ordinary  course  of  trade  and  in  the  regular  and  usual 
prosecution  of  the  vendor's  business  shall  be  fraudulent 
and  void  as  against  the  creditors  of  the  said  vendor, 
unless  the  said  vendee  shall,  in  good  faith,  at  least  five 
(5)  days  before  the  consummation  of  such  sale,  transfer 
or  assignment  demand  and  receive  from  the  vendor  a 
written  statement  under  oath  of  the  vendor  or  a  duly 
authorized  agent  of  the  vendor  having  knowledge  of  the 
facts,  containing  a  full,  accurate  and  complete  list  of  the 
creditors  of  the  vendor,  their  addresses  and  the  amounts 
owing  to  each  as  near  as  may  be  ascertained,  and  if  there 
be  no  creditors,  a  written  statement  under  oath  to  that 
effect ;  and  unless  the  said  vendee  shall  at  least  five  days 
before  taking  possession  of  said  goods  and  chattels  and 
at  least  five  days  before  the  payment  or  delivery  of  the 
purchase  price,  or  consideration  or  any  evidence  of 
indebtedness  therefor,  in  good  faith,  deliver  or  cause  to 
be  delivered  or  send  or  cause  to  be  sent  personally  or 
by  registered  letter  properly  stamped,  directed  and 
addressed,  a  notice  in  writing  to  each  of  the  creditors 
of  the  vendor  named  in  the  said  statement  or  of  whom 
the  said  vendee  shall  have  knowledge,  of  the  proposed 
purchase  by  him  of  the  said  goods  and  chattels  and  of 
the  price,  terms  and  conditions  of  such  sale:  Provided, 
however,  that  it  shall  be  lawful  for  the  vendee  to  pay  to 
the  vendor  so  much  of  the  purchase  price  as  shall  be  in 


532  SALES 

excess  of  the  total  amount  of  the  indebtedness  of  the 
vendor  before  the  expiration  of  the  five  days  herein  re- 
ferred to. 

"  'Sec.  2.  [Provides  that  knowingly  making  a  false 
statement  is  a  crime  and  subject  to  fine  and  imprison- 
ment.] 

"  'Sec.  3.  [Provides  that  act  shall  include  corpora- 
tions, associations,  partnerships,  and  individuals,  but 
shall  not  apply  to  sales  by  executors,  administrators,  trus- 
tees in  bankruptcy  or  any  public  officer  under  judicial 
process,  nor  to  sales  of  exempt  property,  nor  to  sales 
made  in  regular  course  of  business,  nor  to  public  auction 
sales  where  advertised  in  a  newspaper  or  in  five  public 
places  at  least  ten  days  before  the  sale.] ' 

it*  *  #  rpjjg  iegisiature  may,  under  the  police 
power,  pass  such  laws  as  it  deems  necessary  for  the  sup- 
pression of  fraud.  The  reasonableness  of  the  act  and  the 
necessity  for  its  enactment  are  legislative  questions,  with 
which  the  courts  have  no  concern.  Statutes  of  the  same 
general  character  as  the  one  here  involved  have  fre- 
quently been  before  the  courts  of  the  different  states 
and  they  have  been  sustained  by  the  decided  weight  of 
authority.  We  do  not  deem  it  necessary  to  cite  these 
cases.  Many  of  them  will  be  found  cited  in  a  note  to 
Off  &  Co.  v.  Morehead,  in  volume  14  of  American  and 
English  Annotated  Cases,  434. 

"The  Court  below  erred  in  holding  the  act  of  May  3, 
1913,  unconstitutional. 

"The  judgment  of  the  county  court  of  Rock  Island 
county  is  reversed  and  the  cause  remanded." 

Question  318:  (1.)  What  action  did  the  plaintiffs  take  in 
this  case  ?    Under  what  authority  ? 

(2.)     What  are  the  purposes  of  a  bulk  sales  law? 

C.    Sale  by  One  Having  Voidable  Title. 

Sec.  248.    Sale  by  One  Having  Voidable  Title. 

Case  No.  319.    Uniform  Sales  Act,  Sec.  24. 
(See  page  591,  post.) 


RETENTION  AS  FRAUD  533 

Question  319:  (1.)  A  sells  goods  to  B,  who  procures  them 
by  fraud,  which  would  give  A  the  right  to  rescind.  Before  A 
rescinds,  B  sells  to  C  for  value,  who  does  not  know  of  the  fraud. 
A  sues  C  in  trover  (or  brings  replevin).  Can  A  recover?  Root 
v.  French,  13  Wend.   (N.  Y.)  570. 

(2.)  A  sends  goods  to  B  "on  sale  and  return."  B  sells  to  C, 
an  innocent  purchaser,  for  value.     Can  A  recover  against  C? 

(3.)  A  sends  goods  to  B  on  approval,  and  B  sells  to  C.  Can 
A  recover  against  C? 

D.   Retention  of  Possession  by  the  Seller  as  Fraud  Against 
Creditors  and  Subsequent  Purchasers  of  the  Seller. 

Sec.  249.    Retention  of  Possession  as  Fraud. 

Case  No.  320.    Uniform  Sales  Act,  Sees.  25,  26. 
(See  page  591,  post.) 

Case  No.  321.  Wilson  v.  Walrath,  103  Minn.  412,  24  L. 
R.  A.  N.  S.  1127. 

Facts:  One  Spargo  sold  an  automobile  to  Wilson,  who 
paid  full  consideration  therefor,  but  who  agreed  to  allow 
Spargo,  who  was  an  automobile  sales  agent,  to  retain 
possession  of  the  machine  for  demonstration  purposes,  as 
Wilson  had  to  be  away  from  home  for  a  time,  and  other- 
wise would  have  had  to  store  the  machine.  While  in 
such  possession  Spargo  mortgaged  the  machine  to  Wal- 
rath, who  had  no  knowledge  of  the  sale  to  Wilson.  Wil- 
son brings  replevin  proceedings.  Walrath  claims  that 
by  allowing  Spargo  to  remain  in  possession,  the  sale  by 
Spargo  to  Wilson  became  in  law  fraudulent  and  void 
as  to  third  persons  relying  on  the  evident  ownership 
indicated  by  such  possession. 

Point  Involved:  Whether  allowing  the  seller  of  a  chat- 
tel to  remain  in  possession  thereof  after  the  sale,  makes 
the  sale  void  as  to  subsequent  purchasers  or  creditors  of 
the  seller. 

Elliott,  J. :    "  *     *     * 

"1.  There  is  a  line  of  cases  which  holds  that,  while 
delivery  is  not  essential  to  pass  title  as  between  the 


534  SALES 

vendor  and  vendee  of  personal  property,  it  is  necessary 
for  such  purpose  as  against  everyone  but  the  vendor. 
Under  this  rule,  when  the  same  goods  are  sold  to  differ- 
ent persons  by  conveyances  equally  valid,  he  who  first 
lawfully  acquires  the  possession  will  hold  them  as  against 
the  other.  The  motives  and  intentions  of  the  parties  are 
immaterial,  as  the  doctrine  rests  upon  the  general  prin- 
ciple that,  where  one  of  two  innocent  persons  must  suf- 
fer, the  loss  should  fall  on  him  whose  acts  or  omissions 
have  made  or  contributed  to  make  the  loss  possible. 
Lanf  ear  v.  Sumner,  17  Mass.  110,  9  Am.  Dec.  119 ;  Craw- 
ford v.  Forristall,  58  N.  H.  114;  Burnell  v.  Robertson, 
10  111.  282;  Stephens  v.  Gifford,  137  Pa.  219,  21  Am.  St. 
Rep.  868,  20  Atl.  542;  Norton  v.  Doolittle,  32  Conn.  405. 
For  other  cases,  see  2  Mechem  on  Sales,  §  981.  Closely 
connected  with  this  doctrine,  but  resting  on  other  prin- 
ciples, is  the  rule  which  makes  the  retention  of  posses- 
sion by  the  vendor  conclusive  evidence  of  fraud.  This 
doctrine  also  rests  upon  grounds  of  assumed  public  pol- 
icy. It  prevails  by  virtue  of  statutes  or  decisions  based 
on  the  common  law  in  a  number  of  states.  2  Mechem, 
Sales,  §  984;  20  Cyc.  Law  &  Proc,  p.  539,  note  13.  In 
the  greater  number  of  states,  however,  the  rule  is  estab- 
lished that  the  mere  retention  of  possession  by  the  ven- 
dor is  presumptive  evidence  only  of  a  fraudulent  and 
colorable  sale,  and  the  vendee  is  permitted  to  overthrow 
this  presumption  by  evidence  which  establishes  his  good 
faith  and  want  of  knowledge  of  any  fraudulent  intent 
on  the  part  of  the  vendor.  20  Cyc.  Law  &  Proc,  pp.  536 
et  seq.  The  statutes  are  referred  to  in  the  notes  to  2 
Mechem  on  Sales,  §§  960, 961. 

"2.  In  the  thirteenth  year  of  Elizabeth,  there  was 
enacted  the  famous  statute  which  made  all  conveyances 
not  made  bona  fide  and  for  value,  with  intent  to  injure 
and  delay  or  defraud  the  creditors,  void  as  to  such  cred- 
itors. Stat.  13  Eliz.,  chap.  5.  A  later  statute  extended 
this  protection  to  subsequent  purchasers  as  well  as  cred- 
itors. Stat.  27  Eliz.,  chap.  4.  These  statutes  did  not  in 
terms  apply  to  personal  property,  but  from  the  time  of 


RETENTION  AS  FRAUD  535 

Sir  Edward  Coke's  decision  in  Twyne's  Case,  3  Coke, 
80b,  5  Eng.  Rul.  Cas.  2,  sales  of  personal  property,  made 
with  intent  to  delay  and  defraud  creditors  or  subsequent 
purchasers,  have  been  regarded  as  within  the  provisions 
of  the  statutes.  The  question  soon  arose  whether,  under 
these  statutes,  possession  by  the  vendor  was  fraudulent 
per  se,  and  therefore  conclusive,  or  merely  presumptively 
fraudulent.  In  Twyne's  Case,  in  speaking  of  the  indicia 
of  fraud,  it  was  said  that  'continuance  of  the  possession 
in  the  donor  is  the  sign  of  trust  for  himself. ■  In  Edwards 
v.  Harben,  2  T.  R.  587,  it  was  held  that,  'if  there  be  noth- 
ing but  the  absolute  conveyance,  without  the  possession, 
that,  in  point  of  law,  is  fraudulent.'  For  some  time 
thereafter  this  was  the  established  rule  in  the  English 
courts,  but  it  was  finally  held  that  the  proper  construc- 
tion of  the  statute  made  such  a  conveyance  presump- 
tively fraudulent  only.  Hale  v.  Metropolitan  Saloon 
Omnibus  Co.,  28  L.  J.  Ch.  N.  S.  777;  Gregg  v.  Holland, 
(1902)  2  Ch.  360.  To  clear  up  the  difficulty  which  arose 
under  the  statute,  Parliament  enacted  the  various  bills 
of  sale  acts,  which  are  fully  discussed  and  explained  by 
Lord  Blackburn  in  Cookson  v.  Swire  (1884)  L.  R.  9  App. 
Cas.  653,  670.  See  also  references  to  these  acts  and 
decisions  thereunder  in  notes  to  the  fifth  English  edition 
of  Benjamin  on  Sales,  p.  496,  and  appendix,  p.  1029,  and 
in  the  note  to  Twyne's  Case  in  5  Eng.  Rul.  Cas.  27-39. 
See  also  Mr.  Bennett's  note  to  the  sixth  American  edi- 
tion of  Benjamin  on  Sales,  pp.  458-462,  and  Jones,  Chat. 
Mortg.  §§  320  et  seq.  In  the  United  States,  Edwards  v. 
Harben  was  followed  by  Chancellor  Kent  in  Sturtevant 
v.  Ballard,  9  Johns.  337,  6  Am.  Dec.  281,  and  by  the 
Supreme  Court  of  the  United  States,  in  Hamilton  v.  Rus- 
sell, 1  Cranch,  309,  2  L.  ed.  118.  But  in  Warner  v.  Nor- 
ton, 20  How.  488, 15  L.  ed.  950,  Mr.  Justice  McLean  stated 
that '  for  many  years  past  the  tendency  has  been  in  Eng- 
land and  in  the  United  States  to  consider  the  question 
of  fraud  as  a  fact  for  the  jury,  under  the  instruction  of 
the  Court.'  This  is  now  the  established  doctrine  of  the 
Court.    Jewell  v.  Knight,  123  U.  S.  426,  31  L.  ed.  190, 


536  SALES 

8  Sup.  Ct.  Eep.  193;  Smith  v.  Craft,  123  U.  S.  436,  31 
L.  ed.  267,  8  Sup.  Ct.  Rep.  196.  See  note  to  18  L.  R.  A. 
604. 

"Section  3496,  Rev.  Laws  1905,  and  the  previous 
statutes  which  are  embodied  therein,  were  enacted  for 
the  purpose  of  removing  any  doubts  as  to  whether  the 
retention  of  possession  by  the  vendor  is  conclusive  or 
only  presumptive  evidence  of  fraud.  It  provides  in 
express  terms  that  such  possession  shall  be  presumed 
to  be  fraudulent  and  void  as  against  subsequent  pur- 
chasers in  good  faith,  unless  those  claiming  under  such 
sale  make  it  appear  that  the  sale  was  made  in  good 
faith,  and  without  any  intent  to  defraud  such  purchasers. 
The  effect  is  to  cast  upon  the  vendee  the  burden  of  rebut- 
ting the  statutory  presumption  of  fraudulent  intent  by 
proving  his  own  good  faith  and  want  of  knowledge  of 
fraudulent  intent  on  the  part  of  the  vendor.  Leqve  v. 
Smith,  63  Minn.  24,  65  N.  W.  121.  The  statute  controls 
this  case.  If  Wilson  proved  that  he  purchased  the 
machine  in  good  faith,  without  knowledge  of  any  intent 
on  the  part  of  Spargo  to  defraud  his  creditors  or  sub- 
sequent purchasers,  he  was  entitled  to  the  possession  of 
the  property.     [Here  the  Court  considers  the  evidence.] 

"It  is  not  contended  that  there  was  any  actual  bad 
faith  on  the  part  of  Wilson.  In  his  brief,  the  respondent 
thus  states  his  position :  The  sale  was  not  accompanied 
with  immediate  delivery  and  followed  by  an  open  and 
continuous  change  of  possession,  within  the  meaning  of 
§  3496  Rev.  Laws  1905;  and  hence,  'while  in  this  case  it 
may  be  true  that  on  April  25,  1906,  appellant,  in  the  ut- 
most good  faith,  purchased  the  automobile,  yet,  from  that 
time  on,  the  action  of  the  appellant  in  permitting  and 
agreeing  to  allow  Mr.  Spargo,  the  vendor,  to  keep  and  use 
that  machine  in  exactly  the  same  manner  after  the  sale  as 
before,  was  a  fraud  per  se  upon  any  person  who  might 
either  purchase  or  take  the  same  as  security  without 
notice  of  the  rights  of  a  prior  purchaser. '  This  is  the 
doctrine  of  Lanfear  v.  Sumner,  17  Mass.  110,  9  Am.  Dec. 
119,  and  the  other  cases  of  the  group  to  which  reference 


RETENTION  AS  FRAUD  537 

has  been  made.  As  an  abstract  principle  of  law,  that 
doctrine  is  sound  and  controlling  when  applied  to  appro- 
priate facts  and  conditions.  But  the  effect  which  shall 
be  given  to  possession  under  the  particular  circum- 
stances disclosed  in  this  record  is  declared  by  the  statute, 
and  the  statute  should  not  be  disregarded  and  annulled 
by  the  application  of  the  doctrine  of  equitable  estoppel. 
Upon  the  evidence,  Wilson  sustained  the  burden  which 
the  statute  imposes  upon  him,  and  the  finding  of  the 
trial  court  was  thus  erroneous." 

Question  321:  (1.)  State  the  facts  in  this  case,  the  question 
presented  and  what  the  Court  held. 

(2.)  What  two  doctrines  are  there  on  the  effect  of  retention 
by  the  seller  of  the  goods  sold? 

(3.)  What  was  the  early  English  statute?  What  did  it 
provide  ? 

(4.)  What  did  Twyne's  case  hold?  Edwards  v.  Harben? 
Was  the  early  English  doctrine  adhered  to  in  England? 

(5.)  In  the  above  case,  on  whom  was  the  burden  of  proof  in 
reference  to  good  faith?  Why?  How  was  this  burden  sus- 
tained ? 

Case  No.  322.    Ticknor  v.  McClelland,  84  HI.  471. 

Facts:  "A"  sold  "B"  135  acres  of  standing  corn, 
three  stacks  of  hay,  seven  machines,  four  horses  and 
twenty-nine  hogs.  All  of  these  items  were  selected  and 
segregated,  but  no  possession  was  taken  at  the  time. 
Before  "B"  took  possession,  "C,"  a  creditor  of  "A," 
had  the  property  seized  by  the  sheriff.  The  sheriff  took 
possession  and  "B"  brought  replevin. 

Point  Involved:  Same  point  as  in  above  case;  the 
other  view  taken;  whether  the  rule  applies  to  growing 
grain,  ponderous  articles,  etc.,  not  capable  of  immediate 
removal. 

Me.  Chief  Justice  Sheldon  delivered  the  opinion  of 
the  Court:  "As  regards  the  standing  corn  and  stacks 
of  hay,  we  consider  the  delivery  of  possession  sufficient. 
In  case  of  the  sale  of  standing  crops,  the  possession  is 


538  SALES 

in  the  vendee  until  it  is  time  to  harvest  them,  and  until 
then  he  is  not  required  to  take  manual  possession  of 
them.  *  *  *  Where  goods  are  ponderous  and  inca- 
pable of  being  handed  over  from  one  to  another,  there 
need  not  be  a  manual  delivery  of  them.  *  *  *  As  to 
the  rest  of  the  property  which  was  the  subject  of  the 
sale,  it  was  that  character  of  property  that  was  capable 
of  being  immediately  and  readily  removed,  and  a  differ- 
ent rule  governs. 

"The  policy  of  the  law  in  this  state  will  not  permit 
the  owner  of  personal  property  to  sell  it,  and  still  con- 
tinue in  the  possession  of  it.  Possession  being  one  of 
the  strongest  evidences  of  title  to  personal  property,  if 
the  real  ownership  is  suffered  to  be  in  one,  and  the  appar- 
ent ownership  in  another,  the  latter  gains  credit  as  owner, 
and  is  enabled  to  practice  deceit  upon  mankind.  It  is  the 
well-established  doctrine  of  this  Court,  that  an  absolute 
sale  of  personal  property,  where  the  possession  is  per- 
mitted to  remain  with  the  vendor,  is  fraudulent  per  se, 
and  void  as  to  creditors  and  purchasers.     *     *     * 

"We  can  come  to  no  other  conclusion,  than  that  suffer- 
ing this  portion  of  property,  which  was  capable  of  being 
readily  removed,  to  remain  with  the  vendor,  as  was  done, 
rendered  the  sale  of  it  fraudulent  in  law,  and  void  as  to 
creditors,  and  that  it  was  subject  to  the  levy  of  the  exe- 
cution. ' ' 

Question  322:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)     Is  it  in  accord  with  Wilson  v.  Walrath? 


•  Cs 


CHAPTER  FORTY-TWO 

DOCUMENTS  OF  TITLE 

(Note :  The  provisions  of  the  Sales  Act  are  here  referred  to  on 
this  subject,  without  cases,  but  with  some  brief  explanatory- 
notes.) 


§  250.  What  is  a  document  of  title.       §  258. 

§  251.  Negotiable  document  of  title 
denned. 

§  252.  Negotiation       of     negotiable  .    §  259. 
documents  by  delivery. 

§  253.  Negotiation      of      negotiable       §  260. 
documents      by      endorse- 
ment. §  261. 

§  254.  Negotiable  document  marked       §  262. 
"not  negotiable." 

§  255.  Transfer     of     non-negotiable 

documents.  §  263. 

f  256.  Who  may  negotiate  a  docu- 
ment. 

§  257.  Rights    of   persons   to   whom       §  264. 
document  has  been   nego- 
tiated. 


Right  of  person  to  whom 
document  has  been  trans- 
ferred. 

Transfer  of  negotiable  docu- 
ment without  indorsement. 

Warranties  on  sale  of  docu- 
ment. 

Indorser  not  a  guarantor. 

When  negotiation  not  im- 
paired by  fraud,  mistake 
or  duress. 

Attachment  or  levy  on  the 
goods  represented  by  nego- 
tiable document. 

Creditors'  remedies  to  reach 
negotiable  documents. 


Sec.  250.    What  is  a  Document  of  Title. 


(Note:  A  "document  of  title"  is  a  document  which  con- 
stitutes proof  of  the  possession  of  the  goods  by  a  certain  person 
and  constitutes  the  authority  by  which  the  goods  may  be  re- 
ceived from  such  person.  It  includes  bills  of  lading  and  ware- 
house receipts,  dock  warrants,  etc.  It  is  a  document  that  repre- 
sents the  goods.  A  mere  hill  of  sale  is  not  within  the  meaning 
here  a  document  of  title,  unless  it  partakes  of  the  character  of 
the  documents  of  title  mentioned  above.  In  real  estate  law,  the 
deed  is  the  document  of  title,  so  that  we  see  the  term  is  dif- 

530 


540  SALES 

ferently  used  in  real  estate  and  personal  property  law.  The 
essential  thing  to  be  borne  in  mind  is  that  the  goods  are  in  the 
possession  of  a  certain  person  (A)  and  a  document  asserting 
such  possession  has  been  issued,  by  which,  the  goods  may  be 
obtained.'  They  are  chiefly  of  two  sorts:  bills  of  lading  and 
warehouse  receipts. 

We  must  not  confuse  negotiable  documents  of  title  with  nego- 
tiable instruments,  which  are  bills  of  exchange,  promissory  notes 
and  bank  checks.  They  call  for  the  payment  of  money,  and  are 
governed  by  a  separate  body  of  law.     See  post,  Division  IV.) 

Sec.  251-253.    Negotiable  Documents  and  Their 
Negotiation. 

Cases  No.  323, 324, 325.  Uniform  Sales  Act,  Sees.  27, 28. 
29. 

Uniform  Sales  Act,  §§  27,  28,  29. 
(See  page  592,  post.) 

(Note :  Bills  of  lading  and  warehouse  receipts  are  by  »the 
common  law  assignable — not  negotiable,  no  matter  in  what  form 
they  might  be  drawn.  The  Uniform  Bills  of  Lading  Act,  the 
Uniform  Warehouse  Receipt  Act  and  the  Uniform  Sales  Act 
now  adopted  in  a  number  of  states  make  bills  of  lading  and  ware- 
house receipts  negotiable  if  drawn  to  order  or  to  bearer  ("order" 
bills  and  receipts)  and  not  negotiable  if  drawn  to  a  person  direct 
("straight"  bills  and  receipts).  These  acts  it  must  be  remem- 
bered are  not  yet  in  force  in  many  states.) 

Questions  323-325:  (1.)  When  is  a  negotiable  document  of 
title  negotiable  by  one  delivery? 

(2.)  How  may  such  a  document  be  made  by  the  holder  nego- 
tiable by  indorsement  only  ? 

(3.)  In  such  a  case,  could  the  document  again  become  nego- 
tiable by  delivery? 

Sec.  254  to  Sec.  264.    The  Law  of  Documents  of  Title. 

Cases  No.  326  to  336.  Uniform  Sales  Acts,  Sees.  30  to  40. 
(See  page  592,  post.) 

Question  326:  If  a  document  of  title  is  marked  "not-nego- 
tiable," what  effect  does  that  have  on  documents  where  the 
Uniform  Sales  Act  is  in  force? 


DOCUMENTS  OF  TITLE  541 

Question  327:  If  a  document  of  title  is  non-negotiable,  may 
it  be  transferred  ?    What  will  be  the  effect  of  this  transfer  ? 

(Note:  This  section  means  that  if  a  document  of  title  is  in 
negotiable  form,  but  by  reason  of  its  form,  or  a  prior  indorse- 
ment, requires  indorsement  to  transfer  it  as  a  negotiable  docu- 
ment, it  may,  nevertheless,  be  transferred  without  indorsement, 
in  that  case  giving  the  transferee  (purchaser  or  donee)  the  same 
sort  of  rights  as  he  would  have  were  the  document  non-nego- 
tiable, that  is,  merely  assignable.  And  if  the  bill  of  lading  is  a 
straight  bill  it  may  be  transferred,  but  cannot  be  negotiated,  even 
though  indorsed.) 

Question  328:    Who  may  negotiate  a  document? 

Question  329:  State  the  rights  of  a  person  to  whom  a  nego- 
tiable document  has  been  negotiated,  as  determined  by  the  Uni- 
form Sales  Act. 

Question  330:  Where  a  document  has  been  transferred,  but 
not  negotiated  (i.  e.,  either  transferred  without  indorsement 
where  indorsement  required  in  case  of  a  negotiable  document  or 
transferred  in  case  of  a  non-negotiable  document),  what  right 
does  the  transferee  acquire  against  the  transferror? 

Question  331:  Where  indorsement  is  essential  to  negotiation 
and  has  been  omitted,  what  right  has  the  transferee?  In  such 
a  case,  when  does  negotiation  take  effect? 

Questimi  332:  State  the  warranties  of  one  who  sells  a  docu- 
ment of  title  ? 

Question  333:  Does  indorsement  of  a  negotiable  document  of 
title  make  the  indorser  liable  for  the  failure  of  prior  parties  to 
fulfil  their  obligations  ? 

Question  334:  State  the  substance  of  Sec.  38,  Uniform  Sales 
Act. 

Question  335:  State  the  substance  of  Sec.  39,  Uniform  Sales 
Act. 

Question  336:  State  the  substance  of  Sec.  40,  Uniform  Sales 
Act. 


PART  XI 
PERFORMANCE  OF  THE  CONTRACT 

CHAPTER  FORTY-THREE 
THE  PERFORMANCE  OF  THE  CONTRACT 

§  265.  Obligation  of  seller  to  deliver  §  270.  Delivery  to  carrier. 

and    buyer     to     pay    for  §  271.  Right  to  examine  the  goods, 

goods.  §  272.  What  constitutes  acceptance. 

§  266.  Delivery  and  payment  as  con-  §  273.  Acceptance  as  waiver  of  dam- 
current  conditions.  ages. 

§267.  Place,   time   and   manner  of  §274.  Duty  of  buyer  upon  rightful 
delivery.  rejection  of  goods. 

§  268.  Delivery  of  wrong  quantity.  §  275.  Buyer's   liability  for  failure 

§  269.  Delivery  in  instalments.  to  accept. 

Sec.  265.    Obligation  of  Seller  to  Deliver  and  Buyer  to 
Pay  for  Goods. 

Case  No.  337.   Uniform  Sales  Act,  Sec.  41. 

"It  is  the  duty  of  the  seller  to  deliver  the  goods,  and  of 
the  buyer  to  accept  and  pay  for  them,  in  accordance  with 
the  terms  of  the  contract  to  sell  or  sale." 

Question  337:    State  this  section. 

Sec.  266.  Delivery  and  Payment  as  Concurrent  Conditions. 

Case  No.  338.   Uniform  Sales  Act,  Sec.  42. 
"Unless  otherwise  agreed,  delivery  of  the  goods  and 
payment  of  the  price  are  concurrent  conditions;  that  is 

542 


DELIVERY  543 

to  say,  the  seller  must  be  ready  and  willing  to  give  pos- 
session of  the  goods  to  the  buyer  in  exchange  for  the 
price  and  the  buyer  must  be  ready  and  willing  to  pay 
the  price  in  exchange  for  the  possession  of  the  goods." 

Question  338:     State  this  section. 

Sec.  267.   Place,  Time  and  Manner  of  Delivery. 

Case  No.  339.    Uniform  Sales  Act,  Sec.  43. 
(See  page  594,'pos^) 

Question  339:  (1.)  Is  the  obligation  on  the  seller  to  deliver 
the  goods  or  the  buyer  to  send  for  them  ? 

(2.)     "What  is  to  be  deemed  the  place  of  delivery? 

(3.)  What  is  the  rule  where  goods  are  in  the  possession  of  a 
third  person? 

(4.)     What  do  subsections  (4)  and  (5)  provide? 

Case  No.  340.    Cash  v.  Hinkle,  36  Iowa,  623. 

Facts :  A  contracted  to  sell  B  certain  hogs  deliverable 
at  a  certain  place.  At  the  time  and  place  he  had  certain 
hogs  there  which  did  not  comply  with  the  contract  and 
B  refused  to  receive  them.  A  then  told  B  he  might  go 
into  pens  belonging  to  A  and  select  other  hogs.  This  B 
refused  to  do,  and-  he  refused  to  accept  any  of  the  hogs 
which  A  had  at  the  place. 

Point  Involved:  The  obligation  of  the  seller  to  deliver 
the  goods. 


Miller,  J.,  delivered  the  opinion  of  the  Court: 
"*  *  *  It  was  the  duty  of  the  plaintiff  to  have  the 
kind  and  number  of  hogs  specified  in  the  contract  at  the 
place  of  delivery,  ready  to  deliver  them  to  the  defendant. 
The  latter  was  not  required  to  go  into  another  lot  of 
hogs  *  *  *  and  select  therefrom  such  hogs  as  would 
make  the  lot  plaintiff  had  agreed  to  deliver,  comply  with 
the  contract.  It  was  the  business  of  the  plaintiff  to  do 
this.  *  *  *  It  was  the  duty  of  the  plaintiff  to  have 
the  hogs  at  the  time  and  place  of  delivery,  set  apart  and 


544  SALES 

designated  for  that  purpose,  unless  this  was  excused  by 
a  refusal  to  receive.     *     *     * ' ' 

Question  340:    What  were  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case? 


Sec.  268.    Delivery  of  Wrong  Quantity. 

Case  No.  341.    Uniform  Sales  Act,  Sec.  44. 
(See  page  595,  post.) 

Question  341:  (1.)  What  difference  in  amount  of  recovery- 
does  it  make  where  the  seller  does  not  deliver  the  amount  his 
contract  calls  for  and  the  seller  accepts,  knowing  of  the  breach, 
or  accepts  not  knowing  of  the  breach  ? 

(2.)  If  the  seller  sends  a  larger  quantity  than  the  contract 
calls  for,  what  are  the  buyer 's  rights  ? 

Case  No.  342.   Richards  v.  Shaw,  67  111.  222. 

Facts:  A,  in  March,  1867,  contracted  to  deliver  to  B 
on  or  before  May  5, 1867,  500  bushels  of  corn  at  50  cents 
per  bushel.  He  did  deliver  30  bushels  in  April,  delivered 
none  at  all  in  May  and  361  bushels  in  June,  all  of  which 
deliveries  B  accepted. 

Point  Involved:  Whether  a  seller  who  sends  less  than 
he  contracts  to  deliver,  can  recover  and  if  so,  how  much  ? 

Mr.  Justice  Sheldon  delivered  the  opinion  of  the 
Court :  * '  *  *  *  There  was  a  manifest  failure  on  the 
part  of  Shaw  to  complete  his  contract,  yet  we  are  inclined 
to  hold  that  he  was  entitled  to  his  action,  as  upon  an  im- 
plied contract,  for  the  portion  of  corn  he  did  deliver.  It 
is  a  rule  supported  by  a  very  respectable  weight  of  mod- 
ern authority,  that,  if  the  vendee  of  a  specific  quantity 
of  goods  sold  under  an  entire  contract,  receive  a  part 
thereof,  and  retain  it  after  the  vendor  has  refused  to 
deliver  the  residue,  this  is  a  severance  of  the  entirety  of 
the  contract,  and  the  vendee  becomes  liable  to  the  vendor, 
for  the  price  of  such  part ;  but  he  may  reduce  the  vendor  *s 


DELIVERY  545 

claim  by  showing  that  he  has  sustained  damage  by  the 
vendor's  failure  to  fulfill  his  contract.     *     *     *" 

Question  342:    State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 


Case  No.  343.    Perry  v.  Mt.  Hope  Iron  Co.,  16  R.  I.  318. 

Facts:    See  the  opinion. 

Point  Involved:  Whether  a  tender  of  a  larger  amount 
than  the  contract  called  for  is  a  tender  of  fulfillment  of 
the  contract. 

Per  Curiam:  "The  contract,  for  the  breach  of  which 
this  action  was  brought,  was  entered  into  in  manner  fol- 
lowing, to-wit :  The  plaintiff  offered  the  defendant  some 
nut  and  bolt  shop  scraps,  saying  he  had  30  or  40  tons 
to  sell.  The  defendant  offered  to  give  87y2  cents  per  hun- 
dred weight  if  the  plaintiff  would  deliver  it  on  the  defend- 
ant's  wharf.  This  offer  of  the  defendant  was  accepted 
the  next  day.  The  plaintiff  carried  to  the  defendant's 
wharf  53  17/30  tons  and  tendered  it  to  the  defendant. 
*  *  *  At  the  trial  the  defendant  *  *  *  took  the 
objection  that  a  tender  of  53  17/30  tons  was  not  a  tender 
in  fulfillment  of  a  contract  of  30  or  40  tons.  The  jury 
returned  a  verdict  for  the  plaintiff  and  the  defendant  now 
moves  for  a  new  trial.     *     *     * 

"We  think  the  defendant  is  entitled  to  a  new  trial. 
The  contract  for  the  sale  of  30  or  40  tons  would  naturally 
be  understood  to  mean  a  contract  for  between  30  or  40 
tons,  or,  at  most,  for  a  quantity  not  much  exceeding  40 
tons.  Fifty-three  tons  is  so  much  more  than  40  tons 
that  we  do  not  think  that  the  jury  were  warranted  in 
finding  that  the  defendant  agreed  to  purchase  that 
amount.  The  cases  cited  for  the  defendant  show  that  as 
a  general  rule  the  buyer  is  entitled  to  refuse  the  whole 
of  the  goods  tendered  if  they  exceed  the  quantity  agreed 
on;  and  the  vendor  has  no  right  to  insist  upon  the 
buyer's  acceptance  of  all  or  upon  the  buyer's  selecting 
out  of  a  larger  quantity  than  delivered.     *     *     *" 


546  SALES 

Question  343:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Case  No.  344.    Moore  v.  U.  S.,  190  U.  S.  157. 

Facts :  A  sold  to  the  United  States  ' '  about  5,000  tons ' ' 
of  coal  to  be  delivered  by  a  certain  date  at  Honolulu.  A 
brought  the  coal  in  lots  until  he  had  delivered  4,634  tons. 
He  then  in  apt  time  delivered  366  tons  more  which  the 
United  States  refused  to  receive.  A  brought  a  claim 
against  the  United  States  for  breach  of  contract. 

Point  Involved:  The  amount  of  goods  which  the  seller 
can  insist  on  the  buyer  receiving  where  the  contract  calls 
for  " about"  a  certain  quantity;  meaning  of  "about" 
where  it  qualifies  the  amount  contracted  for. 

Mr.  Justice  McKenna  delivered  the  opinion  of  the 
Court:  "•  *  *  the  appellant  agreed  to  deliver  and 
the  United  States  agreed  to  receive  '  about  5,000  tons '  of 
coal,  delivery  to  commence  with  about  2,200  tons,  to  arrive 
at  Honolulu  on  or  about  the  1st  day  of  October,  1898.  By 
the  7th  of  October  delivery  was  made  of  4,634  tons.  About 
a  month  subsequently  appellant  purchased  366  tons  of 
coal  of  a  ship  then  in  the  harbor,  and  tendered  the  coal 
to  the  United  States  in  fulfillment  of  the  contract  to 
deliver  5,000  tons.  The  United  States  refused  to  receive 
it,  and  appellant  sold  it  in  the  open  market  for  $3.061/4 
per  ton  less  than  $9,  the  contract  price.  This  was  the 
best  price  which  could  be  obtained,  and  the  loss  to  appel- 
lant was  $1,120.87.  The  court  of  claims  held  that  the 
appellant  was  not  entitled  to  recover.  We  think  this  was 
error.  The  obligations  of  parties  were  reciprocal;  one 
to  deliver,  the  other  to  receive,  about  5,000  tons  of  coal, 
and  equally  reciprocal  is  the  liability  for  non-perform- 
ance of  the  obligations.  The  only  question  can  be,  Is  366 
tons  less  than  5,000  tons,  'about  5,000  tons!'  We  think 
not.  The  difference  is  too  great.  We  said  in  Brawley  v. 
United  States,  96  U.  S.  168,  172,  *  *  *  that  in 
engagements  to  furnish  goods  to  a  certain  amount  the 
quantity  specified  is  material  and  governs  the  contract. 


DELIVERY  547 

'The  addition  of  the  qualifying  words,  about,  more  or 
less,  and  the  like,  in  such  case,  is  only  for  the  purpose  of 
providing  against  accidental  variations  arising  from 
slight  and  unimportant  excesses  or  deficiencies  in  num- 
ber, measure,  or  weight. '     *     *     * 

"The  record  does  not  inform  us  why  the  United  States 
refused  the  tender,  and  we  must  assume  that  it  had  no 
other  justification  than  its  supposed  right  under  the  con- 
tract. 

"Judgment  reversed  and  cause  remanded  with  direc- 
tions to  enter  judgment  for  appellant  (claimant)  in  the 
sum  of  $1,120.87." 

Question  344:  State  the  facts,  the  defense  raised  and  the 
Court's  decision  in  this  case. 

Case  No.  345.   Robinson  v.  Noble 's  Adm  'rs,  33  U.  S.  181. 

A  sold  B  a  quantity  of  goods,  "supposed  to  amount  to 
3,700  barrels  then  in  the  Steamboat  Paragon,"  for  which 
B  agreed  to  pay  $1.50  per  barrel.  There  were  in  fact  only 
3,105  barrels.    B  sued  A  for  breach  of  his  contract. 

Point  Involved:  Whether  when  a  lot  of  goods  are  sold 
described  as  "supposed  to  amount  to"  certain  quantity, 
the  words  are  a  statement  of  quantity  or  mere  words  of 
identity  or  description. 

Mr.  Justice  McLean  delivered  the  opinion  of  the 
Court,  saying  in  part:  "*  *  *  The  plaintiff's  coun- 
sel insist  that  Robinson  was  bound  by  this  agreement  to 
deliver  the  number  of  barrels  specified,  subject  only  to  a 
reasonable  qualification  of  the  words '  supposed  to  amount 
to  thirty-seven  hundred  barrels'  and  that  by  this  rule  the 
number  could  not  be  reduced  below  thirty-six  hundred 
barrels. 

It  is  clear  from  the  agreement  that  the  amount  of 
freight  was  not  ascertained,  and  that  Robinson  did  not 
covenant  to  deliver  any  specific  number  of  barrels.  It 
was  conjectured  there  were  thirty-seven  hundred,  and 


548  SALES 

the  payment  for  the  transportation  was  to  be  at  the  rate 

of  one  dollar  and  fifty  cents  per  barrel. 

n*     #     # 

"If  Robinson  had  bonnd  himself  to  deliver  a  certain 
number  of  barrels  and  had  failed  to  do  so,  Noble  would 
have  been  entitled  to  damages  for  such  failure;  but  a 
fair  construction  of  the  contract  imposed  no  such  obli- 
gation on  Robinson  and  consequently  the  breach  assigned 

in  the  declaration  is  not  within  the  covenant. 

a*     *     * 

"When  the  circumstances  under  which  this  contract 
was  made  are  considered,  the  contingencies  on  which 
the  delivery  of  the  freight  in  some  degree  depended; 
the  reason  is  seen  why  cautions  and  indefinite  language 
was  used  in  regard  to  the  number  of  barrels  in  the  con- 
tract. And  the  result  proved  the  caution  was  judicious. 
#     #     #)> 

Question  345:  State  the  facts  in  this  case,  the  question  pre- 
sented and  the  Court 's  decision. 

(2.)  A  sells  B  a  heap  of  coal  lying  at  the  mouth  of  A's  mine, 
"being  about  100  tons."  There  are,  in  fact,  only  80  tons.  B 
refuses  to  accept.  Can  A  recover  on  the  contract?  Does  this 
case  differ  from  Case  No.  344  ?  Suppose  A  had  known  there  were 
only  80  tons? 

Sec.  269.    Delivery  in  Installments. 

Case  No.  346.    Uniform  Sales  Act,  Sec.  45. 
(See  page  595,  post.) 

Question  346:  What  determines  whether  a  breach  of  the  con- 
tract in  respect  to  one  installment  is  a  breach  of  the  entire 
contract? 

Case  No.  347.   Norrington  v.  Wright,  115  U.  S.  188. 

Facts:  Suit  brought  by  Arthur  Norrington,  trading  as 
A.  Norrington  &  Co.,  a  citizen  of  Great  Britain,  against 
James  A.  Wright  and  others,  citizens  of  Pennsylvania, 
trading  as  Peter  Wright  &  Sons,  upon  a  contract  by  which 
Norrington  sold  to  Peter  Wright  &  Sons  "5,000  tons  old  T 


DELIVERY  549 

iron  rails,  for  shipment  from  a  European  port  or  ports 
at  the  rate  of  about  one  thousand  tons  per  month,  begin- 
ning February,  1880,  but  whole  contract  to  be  shipped 
before  August  1,  1880,  at  $45.00  per  ton  of  2,240  pounds, 
custom  house  weight,  ex  ship  Philadelphia;  settlement 
cash,  on  presentation  of  bills  accompanied  by  custom 
house  certificate  of  weight.' '  Under  this  contract  the 
plaintiff  shipped  400  tons  by  one  vessel  in  the  last  part  of 
February,  885  tons  in  two  vessels  in  April,  850  tons  by 
three  vessels  in  May,  1,000  tons  by  two  vessels  in  June, 
and  300  tons  by  one  vessel  in  July.  The  defendants  re- 
ceived and  paid  for  the  February  shipment,  upon  its  ar- 
rival in  March,  and  in  April  gave  directions  at  what 
wharves  the  March  shipments  should  be  discharged.  But 
on  May  14,  about  the  time  of  the  arrival  of  the  March 
shipments,  and  having  been  then  for  the  first  time  in- 
formed of  the  amounts  shipped  in  February,  March  and 
April,  gave  the  broker,  Etting,  written  notice  that  they 
should  decline  to  accept  the  shipments  made  in  March 
and  April  because  none  of  them  were  in  accordance  with 
the  contract,  and  wrote  to  the  effect  that  the  400  tons  ac- 
cepted by  them  was  accepted  supposing  it  was  only  a 
parcel  of  the  entire  shipment.  On  the  trial  plaintiff  con- 
tended (1st)  that  under  the  contract  he  had  six  months 
to  ship  the  5,000  tons,  and  any  deficiencies  in  the  earlier 
months  could  be  made  up  subsequently,  provided  that 
defendants  could  not  be  compelled  to  accept  more  than 
1,000  tons  in  any  one  month;  (2nd)  that  if  this  were  not 
so,  the  contract  was  a  divisible  contract,  and  the  remedy 
of  the  defendants  for  a  default  in  any  one  month  was  not 
by  rescission  of  the  whole  contract,  but  only  by  deduction 
of  the  damages  caused  by  the  delays  in  shipments. 

Point  Involved:  Whether  the  contract  was  of  such  an 
indivisible  nature  that  a  breach  as  to  any  one  installment 
was  a  breach  of  the  entire  contract,  discharging  the  pur- 
chaser of  his  obligation  to  accept  future  installments. 

Mr.  Justice  Gray  delivered  the  opinion  of  the  Court: 
"In  the  contracts  of  merchants,  time  is  of  the  essence. 


550  SALES 

The  time  of  shipment  is  the  usual  and  convenient  means 
of  fixing  the  probable  time  of  arrival,  with  a  view  of  pro- 
viding funds  to  pay  for  the  goods,  or  of  fulfilling  contracts 
with  third  persons.  A  statement  descriptive  of  the  sub- 
ject-matter, or  of  some  material  incident,  such  as  the  time 
or  place  of  shipment,  is  ordinarily  to  be  regarded  as  a 
warranty,  in  the  sense  in  which  that  term  is  used  in  insur- 
ance and  maritime  law,  that  is  to  say,  a  condition  preced- 
ent, upon  the  failure  or  nonperformance  of  which  the 
party  aggrieved  may  repudiate  the  whole  contract.  Behn 
v.  Burness,  3  B.  &  S.  751;  Bowes  v.  Shand,  2  App.  Cas. 
455 ;  Lowber  v.  Bangs,  2  Wall.  728 ;  Davison  v.  Von  Lin- 
gen,  113  U.  S.  40. 

"The  contract  sued  on  is  a  single  contract  for  the  sale 
and  purchase  of  5,000  tons  of  iron  rails,  shipped  from  a 
European  port  or  ports  for  Philadelphia.  The  subsidiary 
provisions  as  to  shipping  in  different  months,  and  as  to 
paying  for  each  shipment  upon  its  delivery,  do  not  split 
up  the  contract  into  as  many  contracts  as  there  shall  be 
shipments  or  deliveries  of  so  many  distinct  quantites  of 
iron.  Mersey  Co.  v.  Naylor,  9  App.  Cas.  434,  439.  The 
further  provision,  that  the  sellers  shall  not  be  compelled 
to  replace  any  parcel  lost  after  shipment,  simply  reduces, 
in  the  event  of  such  a  loss,  the  quantity  to  be  delivered 
and  paid  for. 

"The  times  of  shipment,  as  designated  in  the  contract, 
are  '  at  the  rate  of  about  1,000  tons  per  month,  beginning 
February,  1880,  but  whole  contract  to  be  shipped  before 
August  1,  1880.*  These  words  are  not  satisfied  by  ship- 
ping one-sixth  part  of  the  5,000  tons,  or  about  833  tons,  in 
each  of  the  six  months  which  begin  with  February  and 
end  with  July.  But  they  require  about  1,000  tons  to  be 
shipped  in  each  of  the  five  months  from  February  to  June 
inclusive,  and  allow  no  more  than  slight  and  unimportant 
deficiencies  in  the  shipments  during  those  months  to  be 
made  up  in  the  month  of  July.  The  contract  is  not  one 
for  the  sale  of  a  specific  lot  of  goods,  identified  by  inde- 
pendent circumstances,  such  as  all  those  deposited  in  a 
certain  warehouse,  or  to  be  shipped  in  a  particular  vessel, 


DELIVERY  551 

or  that  may  be  manufactured  by  the  seller,  or  may  be 
required  for  use  by  the  buyer,  in  a  certain  mill — in  which 
case  the  mention  of  the  quantity,  accompanied  by  the 
qualification  of  'about,'  or  'more  pr  less,'  is  regarded  as 
a  mere  estimate  of  the  probable  amount,  as  to  which  good 
faith  is  all  that  is  required  of  the  party  making  it.  But 
the  contract  before  us  comes  within  the  general  rule: 
'When  no  such  independent  circumstances  are  referred 
to,  and  the  engagement  is  to  furnish  goods  of  a  certain 
quality  or  character  to  a  certain  amount,  the  quantity 
specified  is  material,  and  governs  the  contract.  The  addi- 
tion of  the  qualifying  words  "about,"  "more  or  less," 
and  the  like,  in  such  cases,  is  only  for  the  purpose  of  pro- 
viding against  accidental  variations,  arising  from  slight 
and  unimportant  excesses  or  deficiencies  in  number, 
measure  or  weight. '  Brawley  v.  United  States,  96  U.  S. 
168, 171, 172. 

1 '  The  seller  is  bound  to  deliver  the  quantity  stipulated, 
and  has  no  right  either  to  compel  the  buyer  to  accept  a 
less  quantity,  or  to  require  him  to  select  part  out  of  a 
greater  quantity ;  and  when  the  goods  are  to  be  shipped  in 
certain  proportions  monthly,  the  seller's  failure  to  ship 
the  required  quantity  in  the  first  month  gives  the  buyer 
the  same  right  to  rescind  the  whole  contract,  that  he 
would  have  had  if  it  had  been  agreed  that  all  the  goods 
should  be  delivered  at  once. 

' '  The  plaintiff,  instead  of  shipping  about  1,000  tons  in 
February  and  about  1,000  tons  in  March,  as  stipulated 
in  the  contract,  shipped  only  400  tons  in  February,  and 
885  tons  in  March.  His  failure  to  fulfil  the  contract  on 
his  part  in  respect  to  these  first  two  installments  justified 
the  defendants  in  rescinding  the  whole  contract,  provided 
they  distinctly  and  seasonably  asserted  the  right  of  rescis- 
sion. 

1 '  The  defendants,  immediately  after  the  arrival  of  the 
March  shipments,  and  as  soon  as  they  knew  that  the 
quantities  which  had  been  shipped  in  February  and  in 
March  were  less  than  the  contract  called  for,  clearly  and 
positively  asserted  the  right  to  rescind,  if  the  law  entitled 


552  SALES 

them  to  do  so.  Their  previous  acceptance  of  the  single 
cargo  of  400  tons  shipped  in  February  was  no  waiver  of 
this  right,  because  it  took  place  without  notice,  or  means 
of  knowledge,  that  the  stipulated  quantity  had  not  been 
shipped  in  February.  The  price  paid  by  them  for  that 
cargo  being  above  the  market  value,  the  plaintiff  suffered 
no  injury  by  the  omission  of  the  defendants  to  return  the 
iron ;  and  no  reliance  was  placed  on  that  omission  in  the 
correspondence  between  the  parties. 

' '  The  case  wholly  differs  from  that  of  Lyon  v.  Bertram, 
20  How.  149,  in  which  the  buyer  of  a  specific  lot  of  goods 
accepted  and  used  part  of  them  with  full  means  of  pre- 
viously ascertaining  whether  they  conformed  to  the  con- 
tract. 

"The  plaintiff,  denying  the  defendants'  right  to  re- 
scind, and  asserting  that  the  contract  was  still  in  force, 
was  bound  to  show  such  performance  on  his  part  as  en- 
titled him  to  demand  performance  on  their  part,  and,  hav- 
ing failed  to  do  so,  cannot  maintain  this  action. 

"For  these  reasons,  we  are  of  opinion  that  the  judg- 
ment below  should  be  affirmed." 

Question  347:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Sec.  270.   Delivery  to  a  Carrier  on  Behalf  of  the  Buyer. 

Case  No.  348.    Uniform  Sales  Act,  Sec.  46. 

"  (1)  Where,  in  pursuance  of  a  contract  to  sell  or  a  sale, 
the  seller  is  authorized  or  required  to  send  the  goods  to 
the  buyer,  delivery  of  the  goods  to  a  carrier,  whether 
named  by  the  buyer  or  not,  for  the  purpose  of  transmis- 
sion to  the  buyer  is  deemed  to  be  a  delivery  of  the  goods 
to  the  buyer,  except  in  cases  provided  for  in  section  19, 
Rule  5,  or  unless  a  contrary  intent  appears. 

"(2)  Unless  otherwise  authorized  by  the  buyer,  the 
seller  must  make  such  contract  with  the  carrier  on  behalf 
of  the  buyer  as  may  be  reasonable,  having  regard  to  the 
nature  of  the  goods  and  the  other  circumstances  of  the 


RIGHT  TO  EXAMINE  553 

case.  If  the  seller  omit  so  to  do,  and  the  goods  are  lost  or 
damaged  in  course  of  transit,  the  buyer  may  decline  to 
treat  the  delivery  to  the  carrier  as  a  delivery  to  himself, 
or  may  hold  the  seller  responsible  in  damages. 

"  (3)  Unless  otherwise  agreed,  where  goods  are  sent  by 
the  seller  to  the  buyer  under  circumstances  in  which  the 
seller  knows  or  ought  to  know  that  it  is  usual  to  insure, 
the  seller  must  give  such  notice  to  the  buyer  as  may  enable 
him  to  insure  them  during  their  transit,  and,  if  the  seller 
fails  to  do  so,  the  goods  shall  be  deemed  to  be  at  his  risk 
during  such  transit." 

Question  348:  When  is  the  seller  liable  as  insurer  of  goods 
in  transit? 

Sec.  271.  Right  to  Examine  the  Goods. 

Case  No.  349.    Uniform  Sales  Act,  Sec.  47. 
(See  page  596,  post.) 

Question  349:  (1.)  What  is  the  right  of  examining  the 
goods? 

(2.)     Must  a  carrier  permit  examination  of  the  goods? 

Case  No.  350.   Zipp  Mfg.  Co.  v.  Pastorino,  120  Wis.  176. 

Facts:    The  facts  appear  in  the  opinion. 

Point  Involved:  The  buyer  having  the  right  to  test 
the  goods,  what  constitutes  a  reasonable  test,  and  the  con- 
sequence of  his  making  an  unreasonable  test. 

Winslow,  J. :  "  This  is  an  action  to  recover  the  pur- 
chase price  of  a  barrel  of  vanilla  sold  by  the  plaintiff  to 
the  defendants,  who  were  wholesale  manufacturers  of 
candy,  under  an  agreement  that  if,  upon  fair  test,  it  did 
not  prove  satisfactory  it  might  be  returned.  The  defense 
was  that  the  vanilla  was  of  poor  quality  and  proved  un- 
satisfactory upon  a  test  being  made,  and  was  returned.  A 
verdict  for  the  plaintiff  was  directed  on  the  ground  that 
the  evidence  showed  without  dispute  that  the  defendants 


554  SALES 

had  accepted  the  vanilla  by  using  in  their  business  a  far 
larger  amount  than  was  reasonably  necessary  for  testing 
purposes.  Examination  of  the  evidence  shows  that  the 
direction  was  plainly  right.  It  appeared  without  dispute 
that  a  satisfactory  test  could  be  made  by  the  use  of  a  few 
ounces;  also  that  the  defendants  used  from  four  to  six 
ounces  daily  in  the  manufacture  of  candy  for  a  period  of 
more  than  six  weeks,  during  which  time  they  made  and 
sold  about  three  tons  of  candy  flavored  with  the  vanilla, 
although  by  their  own  admissions  they  discovered  that  it 
was  not  satisfactory  after  making  the  first  test.  For 
testing  purposes  they  could  only  use  such  quantity  as  was 
fairly  and  reasonably  necessary  to  determine  its  quality. 
Cream  City  G.  Co.  v.  Friedlander,  84  Wis.  53,  54  N.  W.  28. 
When  they  went  beyond  this,  as  they  unquestionably  did 
in  this  case,  they  made  it  their  own,  and  lost  the  right  of 
rejection. ' ' 
•    By  the  Court:    "Judgment  affirmed.' ' 

Question  350 :  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Sec.  272.    What  Constitutes  Acceptance. 

Case  No.  351.    Uniform  Sales  Act,  Sec.  48. 
(See  page  596,  post.) 

Question  351 :  In  what  three  ways  may  a  buyer  indicate  this 
acceptance  of  the  goods? 

(Note:  Acceptance  may  precede,  coincide  with  or  follow 
delivery,  for  as  we  have  seen,  the  buyer  who  orders  by  descrip- 
tion has  a  reasonable  time  for  inspection;  acceptance  is  not 
necessarily  coincident  with  transfer  of  title,  for  title  may  pass 
(as  in  deliveries  to  carriers)  subject  to  a  right  of  inspection.) 

Case  No.  352.  Cream  City  Glass  Co.  v.  Friedlander,  84 
Wis.  53,  21 L.  R.  A.  135. 

Facts:  The  Cream  City  Glass  Co.,  manufacturers  of 
glass,  bought  from  Friedlander  a  quantity  of  soda  ash. 


WHAT  CONSTITUTES  ACCEPTANCE  555 

The  ash  was  delivered  and  the  buyer  on  receiving  it  ex- 
amined it  and  found  it  water-soaked  and  at  once  notified 
the  seller  that  it  was  unfit  for  use,  and  that  such  soda  ash 
was  held  subject  to  the  seller's  orders.  About  a  month 
later,  the  ash  being  still  uncalled  for,  the  buyer  used  about 
three-fourths  of  a  ton  to  test  whether  it  could  be  used  in 
making  glass,  and  this  test  was  unsatisfactory.  The  ash 
had  been  paid  for  on  its  arrival  before  it  was  known  to 
be  defective.  This  is  a  suit  by  the  buyer  for  the  recovery 
of  the  money  so  paid. 

Point  Involved:  Whether  use  of  the  property  by  the 
buyer  after  his  rejection,  amounts  to  an  acceptance  by 
him.  Whether  a  test  after  a  rejection  is  a  use  of  the  prop- 
erty within  the  meaning  of  the  rule. 

Winslow,  J. :  ' '  *  *  *  Assuming  that  the  evidence  is 
sufficient  to  establish  an  implied  warranty  that  the  soda 
ash  in  question  was  of  a  quality  reasonably  fit  to  be  used 
in  the  manufacture  of  glass,  the  question  is,  could  the 
plaintiff,  after  having  decided  that  the  material  was 
wholly  unfit,  and  notified  the  defendant  of  its  decision  and 
its  rejection  of  the  material,  proceed  to  use  three-quarters 
of  a  ton  of  the  material  in  making  a  practical  test,  and 
still  insist  on  its  right  of  rejection?  *  *  *  But  this 
test  is  plainly  for  the  purpose  only  of  enabling  the  pur- 
chaser to  decide  whether  the  material  conforms  to  the  con- 
tract. If  the  fact  can  be  determined  by  inspection  alone, 
the  test  is  not  necessary,  and  the  use  of  the  material,  there- 
fore, clearly  unjustifiable.  Now,  in  this  case  the  plaintiff's 
officers  determined  at  once,  and  upon  inspection  alone, 
that  the  material  was  unfit  for  their  purposes,  and  so  no- 
tified the  defendant,  and  rejected  the  entire  lot.  They  did 
not  claim  to  need  any  test.  They  took  their  position  defi- 
nitely. After  that  act  they  could  not  deal  with  the  prop- 
erty in  any  way  inconsistent  with  the  rejection,  if  they 
proposed  to  insist  upon  their  right  to  reject.  Churchill 
v.  Price,  44  Wis.  540.  They  must  do  no  act  which  they 
would  have  no  right  to  do  unless  they  were  owners  of  the 
goods.  Benjamin,  Sales,  6th  ed.,  §  703.  Under  these  rules 


556  SALES 

it  is  evident  the  plaintiff  had  no  right  to  use  up  a  quantity 
of  the  material  several  weeks  after  the  rejection.  By  the 
rejection  it  became  defendant's  property,  if  such  rejec- 
tion was  rightful.  Plaintiff  had  no  right  to  use  any  part 
of  it.  It  is  claimed  that  the  use  was  simply  for  the  pur- 
pose of  providing  evidence  of  unfitness  for  the  purposes 
of  the  trial  of  this  case ;  but  one  has  no  right  to  use  his 
opponent's  property  for  the  purpose  of  making  evidence. 
The  act  was  an  unmistakable  act  of  ownership,  and  en- 
tirely inconsistent  with  the  claim  that  the  material  had 
been  rejected,  and  was  owned  by  defendant.  It  follows 
that  the  judgment  must  be  reversed. ' ' 

Question  352:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  this  case. 

(2.)  A  contracted  with  B  to  manufacture,  sell  and  deliver  to 
B  and  put  in  running  order  a  certain  machine.  A  set  up  the 
machine  and  put  it  in  running  order.  B  found  it  unsatisfactory 
and  notified  A  that  he  rejected  the  machine.  He  continued  to 
use  it  for  three  months,  but  continually  complained  of  its  defect- 
ive condition.  At  the  end  of  the  three  months  he  took  it  down 
and  notified  A  to  come  and  get  it.  Has  B  lost  his  right  to  reject 
the  machine?     (Brown  v.  Foster,  108  N,  Y.  387.) 

Sec.  273.    Acceptance  as  Barring  Action  for  Damages. 

Case  No.  353.    Uniform  Sales  Act,  Sec.  49. 
(See  page  596,  post.) 

Question  353:  What  does  the  Sales  Act  provide  with  respect 
to  the  effect  of  acceptance  on  the  buyer's  right  to  sue  for 
damages? 

Case  No.  354.  Redlands  Orange  Growers  Ass'n  v.  Gor- 
man, 161  Mo.  203. 

Facts:  Plaintiff  sued  for  $486.50  for  oranges  sold  and 
delivered  to  defendant.  The  defense  was  that  the  goods 
arrived  late  whereby  the  buyers  were  damaged  $450, 
which  sum  they  set  up  by  way  of  counterclaim. 

Point  Involved:  The  right  to  sue  for  damages  caused 
by  tardy  performance,  where  the  buyer  accepts  the  goods. 


WHAT  CONSTITUTES  ACCEPTANCE  557 

Gantt,  J.,  delivered  the  opinion  of  the  Court :  '  i  *  *  * 
The  position  of  the  appellants  is  that,  when  goods  are  de- 
livered out  of  time,  and  the  vendee  accepts  them  without 
protest  he  thereby  waives  his  right  to  damages  resulting 
from  the  breach  of  the  contract,  except  where  the  goods 
are  accepted  of  necessity,  that  is,  where  the  surrounding 
circumstances  are  such  as  to  make  it  necessary  for  him  to 
accept  in  order  to  avoid  the  accumulation  of  much  greater 
damages.  We  cannot  accede  to  this  view  of  the  law.  We 
believe  the  law  to  be  that,  where  time  is  made  the  essence 
of  the  contract,  delay  beyond  the  stipulated  time  in  the 
shipment  or  delivery  of  goods  does  not  preclude  the  ven- 
dee from  accepting  them.  If  he  does  so,  and  is  damaged 
on  account  of  the  delay,  and  he  has  paid  the  purchase 
money,  he  may  bring  this  action  and  recover  his  damage. 
If  he  has  not  so  paid,  he  may  recoup  his  damage  when 
sued  for  the  purchase  price.     *     *     *" 

Question  354:  If  goods  are  delivered  tardily  by  the  seller 
and  the  buyer,  having  a  right  to  reject,  nevertheless,  accepts, 
can  the  buyer  claim  damages? 

(Note :  For  other  cases  on  the  effect  of  acceptance  and  rights 
on  breach  of  warranty  see  Sec.  293,  post.) 

(In  some  states  the  rule  is  that  accepting  the  goods  with 
knowledge  of  the  defect,  or  after  a  reasonable  oppor- 
tunity for  inspection,  waives  all  rights  to  damages.  Un- 
der the  Sales  Act,  such  acceptance  has  this  effect. 

1st.  It  waives  the  right  to  afterwards  reject  the  goods. 

2nd.  It  does  not  as  a  matter  of  law  waive  the  right  to 
sue  for  damages. 

3rd.  It  may  as  a  matter  of  fact  be  evidence  that  the 
goods  are  accepted  as  a  fulfilment  of  the  contract,  or  that 
they  do  in  fact  fulfil  the  contract,  especially  if  there  is 
no  notice  given  of  the  defect. 

But  some  states  [some  of  which  have  now  adopted  the 
Sales  Act]  have  held  that  acceptance,  after  opportunity 
of  reasonable  inspection  or  knowledge  of  defect,  bars  not 
only  the  right  to  afterwards  reject  the  goods  but  a  right 
to  sue  for  damages.) 


558  SALES 

Sec.  274.  Buyer  Not  Bound  to  Return  Goods  Wrongly 
Delivered. 

Case  No.  355.   Uniform  Sales  Act,  Sec.  50. 

"Unless  otherwise  agreed,  when  goods  are  delivered  to 
the  buyer,  and  he  refuses  to  accept  them,  having  the  right 
so  to  do,  he  is  not  bound  to  return  them  to  the  seller,  but 
it  is  sufficient  if  he  notifies  the  seller  that  he  refuses  to 
accept  them.' ' 

Question  355 :  Is  it  the  buyer 's  duty  to  redeliver  goods  wrong- 
fully delivered? 

Case  No.  356.  Rubin  et  al.  v.  Sturtevant  et  al.,  80  Fed. 
930. 

Facts:  Plaintiffs  sue  defendants  for  the  agreed  price 
of  certain  fur  capes,  ordered  by  sample.  When  the  goods 
were  sent,  defendants  declined  to  accept  them  and  re- 
shipped  them  to  plaintiffs  who  refused  to  receive  them. 
Later,  defendants  caused  the  goods  to  be  resold  at  auc- 
tion. 

Point  Involved:  Whether  the  buyer  upon  refusing  to 
accept  the  goods  as  not  in  fulfilment  of  the  contract,  has 
the  right  upon  failing  to  get  the  seller  to  retake  them,  to 
resell  them  on  account  of  the  seller. 

Wallace,  Cibcuit  Judge:  "*  *  *  Where  there  is 
an  express  warranty  upon  an  executory  contract  of  sale, 
and  the  articles  which  are  the  subject  of  the  contract  are 
found,  when  delivery  is  tendered  to  the  vendee,  not  to  cor- 
respond to  the  warranty,  two  remedies  are  open  to  him : 
He  may  return  the  articles  and  rescind  the  contract,  or 
he  may  accept  them,  and  affirming  the  contract  sue  upon 
the  warranty.    *     *     * 

"A  rescission  contemplates  that  both  parties  shall  be 
placed  in  statu  quo,  and  ordinarily  the  vendee  of  goods, 
who  proposes  to  rescind  the  contract  for  their  purchase 
must  rescind  in  toto.     *     *     * 

"In  the  present  case  the  defendants  elected  to  rescind, 


BUYER'S  LIABILITY  559 

*  *  * ;  but  by  the  refusal  of  the  defendants  to  receive 
the  returned  goods,  they  found  themselves  in  the  custody 
of  the  goods  at  a  distant  city.  It  then  became  proper 
for  them,  if  it  was  not  obligatory,  to  take  such  measures 
as  would  be  most  expedient  to  save  unnecessary  loss  to  the 
plaintiffs.  If  they  had  stored  them,  they  would  have  been 
entitled  to  recover  the  reasonable  expenses.  If  it  was 
more  expedient  to  sell  them,  and  if  they  exercised  reason- 
able diligence  in  selling  them,  they  only  became  respon- 
sible for  the  proceeds.     *     *     * ' ' 

Question  356:    State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Sec.  275.  Buyer's  Liability  for  Failing  to  Accept  Delivery. 

Case  No.  357.    Uniform  Sales  Act,  Sec.  51. 
(See  page  597,  post.) 

Question  357:    Where  a  buyer  wrongfully  refuses  to  take 
delivery,  what  is  the  seller's  measure  of  damages? 


PART  XII 

RIGHTS  OF  AN  UNPAID  SELLER  AGAINST  THE 

GOODS 

Chapter  forty-four.       In  general.     Remedies  enumer- 
ated. 
Chapter  forty-five.         Unpaid  seller's  lien. 
Chapter  forty-six.  Stoppage  in  transitu. 

Chapter  forty-seven.     Resale  and  rescission  by  seller. 


CHAPTER   FORTY-FOUR 
REMEDIES  OF  AN  UNPAID  SELLER 

§  276.  Definition  of  unpaid  seller.  §  277.  Remedies    of    unpaid    seller 

enumerated. 

Sec.  276.    Definition  of  Unpaid  Seller. 

Case  No.  358.    Uniform  Sales  Act,  Sec.  52. 
(See  page  597,  post.) 

Question  358 :    Define  an  ' '  unpaid  seller. ' ' 

Sec.  277.    Remedies  of  an  Unpaid  Seller. 

Case  No.  359.    Uniform  Sales  Act,  Sec.  53. 
(See  page  597,  post.) 

Question  359:    Enumerate  the  remedies  of  an  unpaid  seller 
against  the  goods. 

560 


CHAPTER  FORTY-FIVE 
UNPAID  SELLER'S  LIEN 

§  278.  When  right  of  lien  may  be       §  279.  Lien  after  part  delivery, 
exercised.  §  280.  Where  lien  is  lost. 

Sec.  278.   When  Right  of  Lien  May  Be  Exercised. 

Case  No.  360.    Uniform  Sales  Act,  Sec.  54. 
(See  page  597,  post.) 

Question  360:  Under  what  circumstances  does  the  seller  have 
a  lien  upon  the  goods  sold? 

Case  No.  361.   Arnold  v.  Delano,  4  Cush.  (Mass.)  33. 

Facts:  Delano  sold  Lowerly  65  cords  of  wood,  and  the 
same  was  staked  off  and  identified  and  Lowerly  was  to 
come  and  get  it  within  a  year,  and  he  had  a  license  to  come 
on  Delano's  land  for  that  purpose.  Lowerly,  before  any 
of  the  wood  had  been  taken  went  into  bankruptcy  and 
his  assignee  claimed  the  wood  as  against  Delano,  claiming 
that  title  had  passed  and  that  all  Delano  had  was  a  gen- 
eral claim  with  other  creditors  against  Lowerly 's  assets. 
But  Delano  claimed  a  lien  on  the  wood  for  the  purchase 
price. 

Point  Involved:  Whether  a  seller  has  a  lien  on  goods 
of  the  buyer  in  his  possession  sold  on  credit  where  the 
buyer  becomes  insolvent  prior  to  his  receipt  of  the  goods. 

Shaw,  C.  J.,  delivered  the  opinion  of  the  Court: 
um  #  *  wnen  g00ds  are  Sold  and  there  is  no  stipula- 
tion for  credit  or  time  *  *  *  the  vendor  has  *  *  * 
a  lien  for  the  price ;  in  other  words  he  is  not  bound  actu- 

561 


562  SALES 

ally  to  part  with  the  possession  *  *  *  without  being 
paid  for  them.  The  term  lien  imports  that  by  the  con- 
tract of  sale  *  *  *  the  property  has  vested  in  the 
buyer,  because  no  man  can  have  a  lien  on  his  own  goods. 
The  very  definition  of  a  lien  is  a  right  to  hold  goods,  the 
property  of  another,  in  security  for  some  debt,  duty  or 
other  obligation.  *  *  *  A  lien  for  the  price  is  inci- 
dent to  the  contract  of  sale  when  there  is  no  stipulation 
therein  to  the  contrary.  *  *  *  But  *  *  *  when 
a  credit  is  given  by  agreement  the  vendee  has  a  right  to 
the  custody  and  actual  possession  on  a  promise  to  pay  at 
a  future  time.  He  may  then  take  the  goods  away  and  into 
his  own  actual  possession ;  and,  if  he  does  so,  the  lien  of 
the  vendor  is  gone,  it  being  a  right  incident  to  the  posses- 
sion. 

"But  the  law,  in  holding  that  a  vendor,  who  has  thus 
given  credit  for  the  goods,  waives  his  lien  for  the  price, 
does  so  on  one  implied  condition  *  *  *  that  the  ven- 
dee shall  keep  his  credit  good.  If,  therefore,  be- 
fore payment  the  vendee  become  bankrupt  or  insolvent 
and  the  vendor  still  retains  the  custody  of  the  goods,  or 
any  part  of  them ;  or    *     *     *    then  his  lien  is  restored 

and  he  may  hold  the  goods  as  security  for  the  price. 

•     *     #>> 

Question  361:  (1.)  State  the  facts  in  the  question  presented 
and  the  court's  decision  in  this  case. 

(2.)  Does  a  seller  from  whom  title  has  not  passed  have  a 
lien?    Why? 

(3.)     Define  a  lien. 

Sec.  279.   Lien  After  Part  Delivery. 

Case  No.  362.    Uniform  Sales  Act,  Sec.  55. 
(See  page  598,  post.) 

Question  362:    What  does  section  55  provide? 

Sec.  280.   When  Lien  is  Lost. 

Case  No.  363.    Uniform  Sales  Act,  Sec.  56. 
(See  page  598,  post.) 

Question  363:    How  does  an  unpaid  seller  lose  his  lien? 


CHAPTER   FORTY-SIX 
STOPPAGE  IN  TRANSITU 

§  281.  Right  of  stoppage.  §  283.  Ways  of  exercising  right. 

§  282.  When  goods  are  in  transit. 

Sec.  281.   Right  of  Stoppage. 

Case  No.  364.    Uniform  Sales  Act,  Sec.  57. 
(See  page  598,  post.) 

Question  364:    What  is  the  right  of  stoppage  in  transitu  f 

Case  No.  365.   Farrell  v.  R.  &  D.  E.  B.  Co.,  100  N.  C.  390. 

Facts:  Farrell  sold  to  A  and  B,  a  safe,  "on  credit, 
shipped  over  the  R.  &  D.  B.  B.  Co.,  from  Philadelphia  to 
Durham,  N.  C.  During  the  shipment,  Farrell  learned  that 
A  and  B  were  insolvent,  and  demanded  of  the  railroad 
company  a  return  of  the  safe,  tendering  freight  and  other 
charges.  The  railroad  company  refused  to  return  the 
safe  and  claimed  that  before  it  had  received  the  notice, 
it  had  itself  attached  the  safe  as  the  property  of  the  con- 
signee on  a  claim  against  such  consignee,  and  it  claimed 
ownership  of  the  safe  through  such  attachment  proceed- 
ings.   Farrell  sued  the  railroad  company. 

Point  Involved:  The  nature  of  the  right  of  stoppage 
in  transitu;  whether  it  precedes  liens  against  the  goods 
of  the  buyer. 

Shepherd,  J.,  delivered  the  opinion  of  the  Court: 
1 '  The  plaintiffs '  action  is  based  upon  their  alleged  right 
to  stop  the  property  in  transitu.    This  right  'arises  solely 

563 


564  SALES 

upon  the  insolvency  of  the  buyer,  and  is  based  on  the 
plain  reason  of  justice  and  equity  that  one  man's  goods 
shall  not  be  applied  to  the  payment  of  another  man's 
debts.  If,  therefore,  after  the  vendor  has  delivered  the 
goods  out  of  his  own  possession  and  put  them  in  the  hands 
of  a  carrier  for  delivery  to  the  buyer  (which  *  *  * 
is  such  a  constructive  delivery  as  devests  the  vendor's 
lien),  he  discovers  that  the  buyer  is  insolvent,  he  may  re- 
take the  goods,  if  he  can,  before  they  reach  the  buyer's 
possession,  and  thus  avoid  having  his  property  applied  to 
paying  debts  due  to  the  buyer  by  other  people. '     *     *     * 

"The  mere  fact  that  (the  buyers)  were  insolvent  at 
the  time  of  the  sale  could  not  defeat  the  lien  of  the  plain- 
tiffs unless  they  knew  of  such  insolvency.     *     *     * 

"An  attachment  or  execution  against  the  vendee  does 
no  preclude  the  stoppage  in  transitu.     *     *     * 

"The  vendor's  right  of  stoppage  in  transitu  is  para- 
mount to  all  liens  against  the  purchasers. ' ' 

Question  365:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  this  case. 

(2.)     What  is  the  basis  of  the  right  of  stoppage  in  transitu? 

Sec.  282.   When  Goods  Are  in  Transit. 

Case  No.  366.    Uniform  Sales  Act,  Sec.  58. 
(See  page  598,  post.) 

Question  366:  State  when  the  goods  are  to  be  considered  in 
transit,  when  not  in  transit  for  the  purpose  of  exercising  the 
right  of  stoppage  in  transitu. 

Case  No.  367.  Re  W.  A.  Paterson  Co.,  186  Fed.  629,  34 
L.  R.  A.  N.  S.  31. 

Facts:  The  Paterson  Co.  was  a  manufacturer  of  ve- 
hicles at  Flint,  Michigan.  Manley  was  engaged  in  selling 
vehicles  at  St.  Louis,  Missouri.  Elder  &  Wood,  who  were 
engaged  in  like  business  at  Mammoth  Springs,  Arkansas, 
ordered  a  carload  of  vehicles  from  Manley,  in  September, 


STOPPAGE  IN  TRANSITU  565 

1908.  Manley  thereupon  ordered  these  vehicles  from  the 
Paterson  Company  and  directed  it  to  ship  to  Elder 
&  Wood  at  Mammoth  Springs,  Arkansas.  After- 
wards, on  September  17,  1908,  Manley  directed  the 
Paterson  Company  to  ship  these  vehicles  to  him  at  St. 
Louis,  Missouri.  On  October  3,  1908,  the  Paterson  Com- 
pany shipped  the  vehicles  from  Flint,  Michigan,  by  rail 
to  Manley  at  St.  Louis.  The  company  procured  a  bill  of 
lading  naming  it  as  consignor  and  Manley  as  consignee. 
The  Paterson  Company  sent  the  bill  of  lading  to  Manley, 
with  the  invoice  of  the  goods  indicating  that  the  goods 
were  sold  to  Manley  for  $1,018.75.  On  the  arrival  of  the 
vehicles  at  St.  Louis,  on  October  7,  1908,  Manley  sent 
his  clerk  to  the  office  of  the  St.  Louis  &  San  Francisco 
E.  R.  Co.  at  St.  Louis,  and  he,  by  direction  of  Manley, 
surrendered  the  bill  of  lading  to  the  railroad  company, 
which  issued,  by  direction  of  Manley,  a  bill  of  lading 
wherein  Manley  was  named  as  consignor  and  Elder  & 
Wood,  Mammoth  Springs,  Arkansas,  as  consignees.  Un- 
der this  bill  of  lading,  the  goods  were  forwarded  to  Mam- 
moth Springs,  and  Manley  sent  an  invoice  of  the  vehicles 
to  Elder  &  Wood  which  indicated  a  sale  from  him  to  them 
for  $1,304.25.  On  October  10,  1908,  Manley  made  a  gen- 
eral assignment  for  benefit  of  creditors.  On  October  13, 
1908,  the  Paterson  Co.  and  other  creditors  of  Manley  filed 
an  involuntary  petition  in  bankruptcy  against  him,  upon 
which  he  was  subsequently  adjudged  a  bankrupt.  On  the 
same  day  the  Paterson  Co.  telegraphed  from  Flint,  Mich- 
igan, to  the  agent  of  the  St.  L.  &  S.  F.  E.  E.  Co.  at  Detroit, 
Michigan,  to  hold  the  car  of  vehicles  for  it,  and  at  some 
time  after  October  14, 1908,  the  railroad  company  returned 
the  vehicles  to  that  company.  The  Paterson  Co.  filed  a 
claim  against  the  bankrupt  for  $17,017.45  for  the  purchase 
price  of  vehicles  which  it  had  sold  to  Manley  prior  to  the 
transaction  in  question,  and  this  claim  was  allowed. 
Thereafter  a  motion  was  made  by  the  trustee  to  expunge 
this  claim  unless  the  Paterson  Co.  would  pay  back  to  the 
trustee  the  value  of  this  carload  of  vehicles,  which  it  ob- 
tained after  the  petition  in  bankruptcy  was  filed.    This 


566  SALES 

motion  was  granted  and  the  Paterson  Company  appeals. 
Point  Involved:   When  the  transit  ceases  during  which 
the  right  of  stoppage  may  be  exercised. 

Sanbobn,  Circuit  Judge:  "*  *  *  [After  reciting 
the  facts  above  given.] 

"But  the  right  of  stoppage  in  transitu  ceases  when  the 
transit  between  the  vendor  and  purchaser  ends.  The 
Paterson  Company  sold  the  vehicles  to  Manley.  It  sent 
to  Manley  the  bill  of  lading,  which  named  him  as  con- 
signee, and  thereby  gave  him  dominion  and  control%over 
the  goods,  and  it  invoiced  them  to  him  as  the  purchaser. 
It  never  sold  the  goods  to  Elder  &  Wood,  and  was  not  in 
any  way  in  privity  with  them.  Therefore,  when  Manley 's 
clerk,  by  his  direction,  surrendered  the  bill  of  lading  to 
the  St.  Louis  &  San  Francisco  Railroad  Company  at  St. 
Louis,  the  destination  named  in  the  bill,  and  reshipped 
and  rebilled  them  to  Manley 's  purchaser,  Elder  &  Wood, 
the  transit  between  the  Paterson  Company  and  its  vendee, 
Manley,  ended  and  the  right  of  stoppage  in  transitu 
ceased.  A.  J.  Neimeyer  Lumber  Co.  v.  Burlington  &  M. 
River  R.  Co.,  54  Neb.  321,  341,  342,  40  L.  R.  A.  534,  74 
N.  W.  670 ;  Eaton  v.  Cook,  32  Vt.  59,  61 ;  Rowley  v.  Bige- 
low,  12  Pick.  307,  313,  314,  23  Am.  Dec.  607;  Memphis  & 
L.  R.  R.  Co.  v.  Freed,  38  Ark.  614,  622;  Treadwell  v. 
Aydlett,  9  Heisk.  388." 

Question  367:     (1.)     State  this  case. 

(2.)  A  sells  goods  to  B,  and  sends  them,  by  freight  to  C,  a 
forwarder  employed  by  B  to  send  them  on  to  a  further  point 
when  so  ordered  by  B.  B  becomes  insolvent  while  the  goods  are 
in  C  's  possession.  A  attempts  to  exercise  his  right  to  stop.  Are 
the  goods  still  in  transit?    (Biggs  v.  Barry,  Fed.  Cas.  1402.) 

Sec.  283.  Ways  of  Exercising  Right  to  Stop. 

Case  No.  368.    Uniform  Sales  Act,  Sec.  59. 
(See  page  599,  post.) 

Question  368:  How  may  the  seller  exercise  the  right  of  stop- 
page in  transituf 


CHAPTER   FORTY-SEVEN 
RESALE  AND  RESCISSION  BY  SELLER 

§  284.  When   and   how   resale    may  §  286.  Effect  of  sale  of  goods  sub- 
be  made.  ject  to  lien  of  stoppage  in 

§  285.  When  and  how  the  seller  may  transitu. 

rescind  the  sale. 

Sec.  284.   When  and  How  Resale  May  Be  Made. 

Case  No.  369.    Uniform  Sales  Act,  Sec.  60. 
(See  page  599,  post.) 

Question  369 :    State  the  provisions  of  Sec.  60  of  the  Sales  Act. 

Case  No.  370.    Bagley  v.  Findlay,  82  111.  524.    (Set  ont 
as  Case  No.  374,  post.) 

Question  369:  (See  question  274.) 

Sec.  285.   When  and  How  the  Seller  May  Rescind  the  Sale. 

Case  No.  371.    Uniform  Sales  Act,  Sec.  61. 
(See  page  599,  post.) 

Question  371 :    State  the  provisions  of  Sec.  61,  Sales  Act. 

Sec.  286.   Effect  of  Sale  of  Goods  Subject  to  Lien  of  Stop- 
page in  Transitu. 

Case  No.  372.    Uniform  Sales  Act,  Sec.  62. 
(See  page  600,  post.) 

Question  372:    State  the  provisions  of  this  section. 

567 


PART  XIII 

ACTIONS  FOR  BREACH  OF  THE  CONTRACT 

Chapter  Forty-eight.     Remedies  of  the  seller. 
Chapter  Forty-nine.      Remedies  of  the  buyer. 

CHAPTER   FORTY-EIGHT 
REMEDIES  OF  THE  SELLER 

§  287.  Action  for  the  price.  §  289.  When  seller  may  rescind  con- 

§  288.  Action  for  damages  for  non-  tract  or  sale, 

acceptance. 

Sec.  287.  Action  for  the  Price. 

Case  No.  373.   Uniform  Sales  Act,  Sec.  63. 
(See  page  600,  post.) 

Question  373:    State  the  provisions  of  See.  63  of  the  Sales  Act. 

Case  No.  374.    Bagley  v.  Findlay,  82  El.  524. 

Facts:  Suit  by  Findlay,  as  seller,  against  Bagley,  as 
buyer,  of  certain  goods  for  damages  for  refusing  to  re- 
ceive the  goods,  the  seller  having  tendered  delivery  to 
the  buyer.  Part  of  the  goods  were  in  Milwaukee  and  part 
in  Chicago.  After  the  buyer  refused  to  accept  the  goods, 
the  seller  gave  notice  that  he  would  proceed  to  resell  them 
and  held  the  buyer  responsible  for  the  loss.  The  net  pro- 
ceeds of  the  resale  fell  short  of  the  contract  price  by  $1,- 
629.86,  not  including  $402.62  expenses  for  commissions 

568 


REMEDIES  OF  SELLER  569 

and  charges.    Judgment  was  entered  for  $1,629.86  and 
defendant  appeals. 

Point  Involved:  The  remedies  of  the  seller  where  the 
buyer  refuses  to  take  the  goods. 

Mr.  Justice  Dickey  delivered  the  opinion  of  the  Court : 
1 '  When  a  vendee  of  goods,  sold  at  a  specific  price,  refuses 
to  take  and  pay  for  the  goods,  the  vendor  may  store  the 
goods  for  the  vendee,  give  him  notice  that  he  has  done  so, 
and  then  recover  the  full  contract  price,  or  he  may  keep 
the  goods  and  recover  the  excess  of  the  contract  price  over 
and  above  the  market  price  of  the  goods  at  the  time  and 
place  of  delivery,  and  this  means  the  market  price  of  such 
goods  in  such  condition  and  in  such  quantity  as  the  goods 
were  at  the  time  for  delivery.  In  such  case,  if  goods  are 
bought  in  large  quantities,  the  market  price  at  retail  is  not 
the  standard,  but  the  market  price  in  large  quantities ;  or 
the  vendor  may,  giving  notice  to  the  vendee,  proceed  to 
sell  the  goods,  in  their  then  condition  and  quantity,  to  the 
best  advantage,  and  recover  of  the  vendee  the  loss,  if  the 
goods  fail  to  bring  the  amount  of  the  contract  price.  The 
appellee  adopted  the  latter  course,  and  the  only  question 
of  fact  presented  is,  were  the  goods  sold  to  the  best  ad- 
vantage ! 

"In  such  case,  the  vendor  takes  the  position  of  agent 
for  the  vendee,  and  is  held  to  the  same  degree  of  care, 
judgment  and  fidelity  that  is  imposed  by  the  law  upon  an 
agent  put  in  the  custody  of  such  goods  in  such  condition, 
with  instructions  to  sell  them  to  the  best  advantage. 

"Without  reviewing  the  evidence  in  this  case,  it  is 
sufficient  for  us  to  say  that  the  evidence  fully  sustains  the 
finding  of  the  Court — that  the  goods  were  fairly  sold, 
with  reasonable  diligence,  judgment  and  care. 

"Appellant  insists  that  the  sale  must,  in  such  case,  be 
in  the  market  where  the  goods  are,  and  objects  that  the 
goods  stored  in  Milwaukee  were  sold  in  Chicago.  The 
purchaser  was  found  in  Chicago,  but  he  bought  the  goods 
in  their  then  condition  in  store  in  Milwaukee,  and  if  these 
goods  were  taken  to  Chicago  at  all,  it  was  after  the  sale. 


570  SALES 

' '  The  appellant  has  no  just  cause  of  complaint  against 
the  finding  of  the  Court.  Upon  the  evidence  shown  in  the 
record,  the  Court  below  might,  without  impropriety,  have 
included  in  the  assessment  of  damages  the  $402  expenses 
incurred  by  the  appellee  for  commissions  and  charges  in- 
curred in  making  the  sale. 

' '  Judgment  affirmed. ' ' 

Question  374:  Where  the  vendee  refuses  to  receive  the  goods, 
what  are  the  remedies  of  the  vendor  ? 

Sec.  288.    Action  for  Damages  for  Non- Acceptance  of 

Goods. 

Case  No.  375.    Uniform  Sales  Act,  Sec.  64. 
(See  page  600,  post.) 

Question  375:     State  the  provisions  of  this  section. 

Sec.  289.   When  Seller  May  Rescind  Contract  or  Sale. 

Case  No.  376.   Uniform  Sales  Act,  Sec.  65. 
(See  page  601,  post.) 

Question  376:  When  may  the  seller  rescind  the  contract  of 
sale? 


CHAPTER   FORTY-NINE 
REMEDIES  OF  THE  BUYER 

§  290.  Action  for  converting  or  de-  .  §  292.  Specific  performance. 

taining  goods.  §  293.  Remedies  for  breach  of  war- 

§  291.  Action  for  failing  to  deliver  ranty. 

goods.  §  294.  Interest  and  special  damages. 

Sec.  290.    Action  for  Converting  or  Detaining  Goods. 

Case  No.  377.   Uniform  Sales  Act,  Sec.  66. 
(See  page  601,  post.) 

Question  377:    What  are  the  provisions  of  this  section? 

Sec.  291.    Action  for  Failing  to  Deliver  Goods. 

Case  No.  378.   Uniform  Sales  Act,  Sec.  67. 
(See  page  601,  post.) 

Question  378:    What  are  the  provisions  of  this  section? 

Case  No.  379.    Jordan  v.  Patterson,  67  Conn.  473. 
(Set  out  on  page  153,  supra.) 

Sec.  292.    Specific  Performance. 

Case  No.  380.    Uniform  Sales  Act,  Sec.  68. 
(See  page  601,  post.) 

Question  380:    What  are  the  provisions  of  this  section? 

Case  No.  381.   P.  &  F.  Corbin  v.  Tracy,  34  Conn.  325. 
(Set  out  as  Case  No.  155,  supra.) 

571 


572  SALES 

Sec.  293.   Remedies  for  Breach  of  Warranty. 

Case  No.  382.    Uniform  Sales  Act,  Sec.  69. 
(See  page  601,  post.) 

Question  382 :     State  the  provisions  of  Sec.  69,  Sales  Act. 

Case  No.  383.    Underwood  v.  Wolf,  131  111.  425. 

Facts:  Sale  by  Wolf  to  Underwood  of  certain  ma- 
chinery, to  be  erected  on  Underwood's  premises,  and  to 
meet  certain  requirements  according  to  test.  Suit  to  re- 
cover the  contract  price  of  such  machines.  Defendant 
claims  a  set-off  by  way  of  damages.  Contention  by  the 
plaintiff  that  by  not  rejecting  the  goods,  defendant 
waived  his  right  to  damages. 

Point  Involved:  Whether  the  buyer  may  receive  the 
goods  and  sue  on  the  breach  of  warranty. 

Mr.  Justice  Magruder  delivered  the  opinion  of  the 
Court :  "  *  *  *  Where  there  is  a  sale  and  delivery  of 
personal  property  in  presenti  with  express  warranty, 
and  the  property  turns  out  to  be  defective,  the  vendee 
may  receive  and  use  the  property  and  sue  for  damages 
on  a  breach  of  warranty,  or,  when  sued  for  the  purchase 
price,  he  may  recoup  such  damages  under  the  general 
issue  or  set  them  up  in  a  specified  plea  of  set-off.  This  is 
a  well-settled  rule.  In  the  present  case  the  contract  is 
executory;  the  title  to  the  property  did  not  vest  in  the 
purchaser  until  the  period  for  making  the  test  had  passed. 
It  has  been  held  in  some  states  that,  where  the  contract  is 
thus  executory  and  a  time  is  fixed  for  making  a  test,  the 
acceptance  and  use  of  the  property,  after  such  time  has 
passed,  amount  to  a  waiver  of  the  right  to  claim  dam- 
ages for  a  breach  of  the  warranty.  But  such  is  not  the 
law  in  this  state.  In  the  present  case,  the  evidence  tends 
to  show  that  the  defendants  took  possession  about  July  1, 
1886,  of  the  machines  placed  in  their  packing  house  by  the 
plaintiff,  and  had  been  using  the  same  up  to  the  time  of 
the  trial  of  the  cause  in  the  Court  below.     *     *     * 


REMEDIES  OF  BUYER  573 

"We  think  that  even  where  the  contract  is  executory, 
the  claim  for  damages  on  account  of  a  breach  of  the 
warranty  will  survive  the  acceptance  of  the  property. 

*  *  *  In  Babcock  v.  Trice,  18  111.  420,  there  was  an 
executory  contract  for  the  sale  and  delivery  of  corn  with 
an  implied  warranty  that  it  should  be  of  a  fair  and  mer- 
chantable quality;  it  was  there  said:  'It  is  true  that  the 
acceptance  of  corn  under  an  executory  contract,  with  op- 
portunity of  inspection  at  the-  time  of  delivery,  without 
complaint,  may  raise  a  presumption  that  it  was  of  the 
quality  contemplated  by  the  parties,  but  it  will  not  pre- 
clude the  party  from  showing  and  setting  up  the  actual 
defect   in   quality   and    condition.    *     *     *     He   could 

*  *  *  under  the  general  issue  prove  the  facts  out  of 
which  the  warranty  arose,  the  breach  and  his  damages  by 
way  of  recoupment.    *     *    * ' ' 

Question  383:  Can  a  purchaser,  according  to  this  case,  accept 
the  goods,  knowing  that  they  are  not  as  warranted  and  then  claim 
damages  for  the  breach  of  warranty? 

Case  No.  384.  North  Alaska  Salmon  Co.  v.  Hobbs,  Wall 
&  Co.,  159  Cal.  380,  35  L.  E.  A.,  new  series,  501. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  The  right  of  a  buyer  of  personal  prop- 
erty upon  an  express  warranty  to  sue  for  breach  of  such 
warranty  where  he  has  accepted  the  goods  with  knowl- 
edge of  the  breach. 

Shaw,  J.,  delivered  the  opinion  of  the  court: 
1  *  This  is  an  appeal  from  an  order  denying  the  def end- 
ant^  motion  for  a  new  trial. 

"The  action  was  brought  to  recover  damages  for  the 
breach  of  an  express  warranty  in  the  sale  of  goods.  The 
plaintiff  alleged  that  in  November,  1903,  plaintiff  and  de- 
fendant agreed  in  writing  that  the  defendant  should  man- 
ufacture, sell,  and  deliver  to  plaintiff  at  the  premises  of 
the  American  Can  Company,  in  San  Francisco,  120,000 
salmon  boxes,  the  defendant  thereby  expressly  warrant- 


574  SALES 

ing  that  all  said  boxes  should  be  of  dry  stock  and  free 
from  dampness,  and  further  agreeing  to  deliver  the  same 
between  December,  1903,  and  April  10, 1904 ;  that  defend- 
ant at  the  time  knew  that  plaintiff  required  for  its  busi- 
ness in  salmon  canning  a  large  quantity  of  empty  cans 
packed  in  dry  boxes  for  shipment  to  the  canneries  of 
plaintiff  on  Bristol  bay,  by  vessels  to  leave  San  Fran- 
cisco on  April  15th,  1904,  so  as  to  reach  the  canneries  at 
the  opening  of  the  fishing  season  of  that  year,  which 
would  end  about  August  1st;  that  defendant  delivered 
93,000  boxes  under  the  contract,  from  January  5,  to 
March  3, 1904,  at  the  premises  of  the  American  Can  Com- 
pany, for  which  plaintiff  paid  the  contract  price  on  de- 
livery. It  is  further  averred  that  a  large  number  of  boxes 
were  not  of  dry  stock  nor  free  from  dampness,  and  be- 
cause thereof  the  cans  packed  therein  became  rusty  and 
unfit  for  use,  whereby  the  plaintiff  was  damaged  in  the 
sum  of  $15,000.  The  cause  was  tried  by  a  jury,  a  verdict 
was  rendered  in  favor  of  the  plaintiff  for  $3,500,  and 
judgment  was  given  accordingly. 

"The  evidence  showed  the  making  of  the  contract,  as 
alleged,  that  the  plaintiff  about  the  same  time  had  en- 
gaged the  American  Can  Company  to  make  a  large  num- 
ber of  cans  to  be  packed  in  said  boxes,  and  directed  the 
defendant  to  deliver  the  boxes  to  said  can  company  for 
that  purpose ;  that  the  defendant  knew  that  the  can  com- 
pany was  to  pack  the  boxes  with  the  cans  for  the  plain- 
tiff's use  during  the  fishing  season  of  1904,  and  that  it  was 
a  matter  of  common  knowledge  that  the  plaintiff  would 
not  be  able  to  procure  dry  salmon  boxes  from  other 
dealers  or  factories  in  time  for  the  fishing  season,  if  the 
defendant  failed  to  deliver  the  boxes,  or  if  the  boxes  de- 
livered were  wet  or  damp.  Plaintiff  also  proved  the 
delivery  of  93,000  of  the  boxes  and  payment  therefor 
at  the  contract  price.  As  the  deliveries  were  made,  the 
boxes  were  inspected  by  plaintiff.  At  the  beginning  of 
the  delivery  a  number  of  the  boxes  were  found  to  be  not 
of  dry  stock  nor  free  from  dampness,  and  the  defendant 
was  immediately  notified  thereof,  and  promised  that  no 


REMEDIES  OF  BUYER  575 

more  of  that  quality  should  be  delivered.  Nevertheless, 
a  large  number  of  the  boxes  subsequently  delivered  were 
not  of  the  quality  warranted.  They  were  all,  however, 
inspected  by  the  plaintiff 's  servants,  and  were  taken  and 
used  by  the  plaintiff  as  cases,  within  which  the  cans  were 
packed  and  shipped  to  Bristol  bay.  The  dampness  of  the 
boxes  caused  a  large  number  of  the  cans  to  become  rusty 
and  unfit  for  use,  whereby  plaintiff  suffered  damages  to 
the  amount  given  by  the  verdict. 

"The  defendant  asked  the  Court  to  instruct  the  jury 
that,  if  the  boxes  delivered  to  plaintiff  were  damp  at  the 
time  of  delivery,  and  that  fact  was  visible  and  apparent 
upon  inspection,  and  the  plaintiff  was  aware  of  the  said 
condition  of  the  boxes,  but  nevertheless  accepted  them 
and  appropriated  them  to  its  own  use  without  notifying 
the  defendant  at  the  time  of  receiving  them,  or  within  a 
reasonable  time  thereafter,  that  they  were  not  accepted 
as  fulfilling  the  contract,  that  the  plaintiff  thereby  waived 
any  such  defects,  and  could  not  recover  damages  on  ac- 
count of  them.  This  instruction  was  refused,  and  the 
Court  instructed  the  jury  that  acceptance  by  the  plaintiff 
and  payment  of  the  purchase  price  did  not  relieve  the  de- 
fendant from  liability  under  its  guaranty,  and  that,  if 
they  should  find  that  the  boxes  were  wet  and  damp  at  the 
time  of  delivery,  and  were  accepted  and  paid  for  by  the 
plaintiff,  they  should  render  a  verdict  for  such  damages 
as  the  evidence  should  show  were  caused  by  the  wet  and 
damp  condition  of  the  boxes.  The  defendant  contends 
that  the  Court  erred  in  refusing  to  give  the  instruction 
asked  by  it,  and  in  instructing  the  jury  as  above  stated. 

' '  The  main  question  in  the  case,  and  the  one  which  con- 
trols the  decision  upon  the  merits,  involves  the  right  of 
a  buyer  of  personal  property  upon  an  express  warranty 
of  quality  to  recover  damages  for  a  breach  of  such  war- 
ranty, where  he  has  accepted  the  goods  with  knowledge 
of  the  defect  in  quality.  The  defendant  contends  that  the 
only  remedy  of  the  buyer  in  the  case  of  an  executory  con- 
tract for  the  sale  of  goods  with  a  warranty  of  quality, 
where  he  obtains  knowledge  of  a  defect  in  the  quality  at 


576  SALES 

the  time  the  goods  are  offered  for  delivery,  is  to  reject 
such  goods  and  insist  upon  the  due  performance  of  the 
contract;  or,  if  the  discovery  of  the  defective  quality  is 
made  after  delivery,  to  immediately  rescind  the  contract 
and  return,  or  offer  to  return,  the  goods  received,  and  sue 
for  the  money  paid  therefor.  The  general  rule  applicable 
to  all  cases  of  sales  of  property  is  that  the  buyer  has  an 
election  of  remedies  for  a  breach  of  a  contract  of  war- 
ranty. If  he  knows  of  the  defect  at  the  time  performance 
is  offered,  he  may  refuse  to  accept  the  goods,  insist  on  due 
performance  and  sue  for  damages  for  nonperformance, 
if  further  performance  is  not  duly  offered,  and  if  he  has 
paid  for  the  goods  in  advance,  he  can  recover  the  amount 
of  money  paid  thereon  as  part  of  the  damages.  If  part 
performance  has  been  made,  he  may  rescind  the  contract, 
restore  what  he  has  received,  and  recover  what  he  has 
paid.  He  need  not  rescind,  or  reject  the  goods,  however, 
but  may  stand  upon  the  contract,  and,  relying  upon  the 
warranty,  may  take  the  goods  offered  and  sue  for  the 

damages  caused  by  the  breach. 
<<*     #     * 

"The  defendant  contends  that  there  is  a  well-recog- 
nized exception  to  this  rule  in  cases  where  the  defects  in 
the  articles  are  obvious,  or  where  the  buyer  knows  of  them 
at  the  time  of  the  acceptance  of  the  goods.  *  *  * 
If  one  who  buys  goods  upon  an  express  warranty 
of  quality  must  refuse  to  receive  them  if  he  knows  they 
are  defective  at  the  time,  and  waives  his  right  of  action 
on  the  warranty  if  he  accepts  them,  the  warranty  would  be 
useless,  since  he  would  have  the  same  right  if  he  had  not 
taken  the  warranty,  and  his  damage  for  nondelivery  of 
the  goods  would  be  practically  the  same  in  one  case  as  in 
the  other,  except  in  the  one  case  where  greater  damages 
are  allowed  by  the  Code.    Civil  Code,  Sec.  3314. 

"For  these  reasons  we  are  of  the  opinion  that  the  Court 
correctly  instructed  the  jury,  and  that  the  evidence  suf- 
ficiently sustains  the  verdict  of  the  jury." 

Question  384:  "What  were  the  main  facts,  the  defendant's 
contention  and  what  the  court  held  ? 


REMEDIES  OP  BUYER  577 

Case  No.  385.    Rogers  v.  Hanson,  35  Iowa,  283. 

Facts:  Sale  of  a  machine,  under  express  warranty, 
for  which  the  purchasers  gave  a  mare  valued  at  $100  and 
their  notes  for  $610.  "Warranty  broken  and  judgment 
rescinding  the  contract,  and  requiring  a  surrender  of  the 
mare  and  notes.    Appeal  by  seller. 

Point  Involved:  Whether  after  receipt  of  the  goods 
under  a  warranty,  the  purchaser  may,  on  breach  of  the 
warranty,  rescind  the  sale. 

Day,  J. :  *  'IV.  Next  it  is  urged  that  the  Court  erred  in 
rendering  a  judgment  rescinding  the  contract,  and  re- 
quiring a  surrender  of  the  mare  and  notes.  The  author- 
ities are  irreconcilably  in  conflict  as  to  the  right  of  a  pur- 
chaser with  warranty,  upon  a  breach  of  the  warranty  to 
rescind  the  contract  and  recover  the  purchase  price.  As  a 
result  of  the  authorities  Parsons  states  that  the  purchaser 
'may  return  the  goods  forthwith,  and  if  he  does  so  with- 
out unreasonable  delay,  this  will  be  a  rescission  of  the 
sale,  and  he  may  sue  for  the  price  if  he  has  paid  it,  or  de- 
fend against  an  action  for  the  price,  if  one  be  brought  by 
the  seller/  L.  Parsons  on  Cont.  (5th  ed.),  592.  At  the 
same  time  he  concedes  that  'some  authorities  of  great 
weight  limit  his  right  to  return  the  goods  for  breach  of 
warranty  to  cases  of  fraud,  or  where  there  was  an  ex- 
press agreement  to  that  effect  between  the  parties. '  Id. 
593.  Upon  the  other  hand,  in  Story  on  the  Law  of  Sales, 
it  is  stated  that '  if  the  contract  be  executed,  and  the  goods 
be  completely  accepted,  so  as  to  pass  the  property  therein 
to  the  vendee,  it  is  very  generally  held  that  he  cannot 
elect  to  rescind  the  contract,  and  return  the  goods,  after 
actually  receiving  them,  so  as  to  entitle  him  to  bring  an 
action  for  money  had  and  received ;  but  he  must  declare 
specially  on  his  warranty.'  Story  on  Sales  (4th  ed.),  Sec. 
421.  But  it  is  admitted  that  in  some  states  it  is  held 
otherwise.  In  Don  v.  Fisher,  1  Gush.  271,  Shaw,  C.  J., 
said:  'It'  (a  warranty)  'is  not  strictly  a  condition,  for 
it  neither  suspends  nor  defeats  the  completion  of  the 
sale,  the  vesting  of  the  thing  sold  in  the  vendee,  nor  the 


578  SALES 

right  to  the  purchase  money  in  the  vendor.  And  not- 
withstanding such  a  warranty  or  any  breach  of  it,  the 
vendee  may  hold  the  goods,  and  have  a  remedy  for  his 
damages  by  action.  But  to  avoid  circuity  of  action  a 
warranty  may  be  treated  as  a  condition  subsequent,  at 
the  election  of  the  vendee,  who  may,  upon  a  breach 
thereof,  rescind  the  contract,  and  recover  back  the  amount 
of  his  purchase  money,  as  in  case  of  fraud.' 

"Such  is  also  the  rule  in  Maryland.  See  Hyatt  v. 
Boyle,  5  Gill  &  Johns.  121;  Franklin  v.  Long,  7  id.  407. 
The  same  rule  has  been  declared  in  Maine.  See  Marston 
v.  Knight,  29  Me.  341;  see,  also,  Bryant  v.  Isburgh,  13 
Gray,  607 ;  Kurtzman  v.  Weaver,  20  Penn.  St.  422 ;  Scran- 
ton  v.  Tilly,  16  Tex.  183. 

"The  doctrine  of  the  Massachusetts  cases,  though,  per- 
haps, not  sustained  by  the  greater  number  of  authorities, 
is,  to  our  minds,  the  more  reasonable  and  just.  We  know 
of  no  satisfactory  reason  why  one  who  desires  a  good 
article  and  is  willing  to  pay  a  price  which  will  command 
it,  should  be  required  to  keep  an  inferior  article  at  a 
lesser  price.  Such  a  construction  of  the  law  substitutes 
for  the  party's  contract  an  agreement  which  he  did  not 
make,  and  requires  him  to  accept  an  article  which  he  would 
not  have  purchased  if  he  had  known  of  its  defects. 

"The  true  rule,  it  seems  to  us,  is  to  give  the  vendee  his 
option  to  retain  the  purchased  article  and  recover  the 
damages  sustained,  or  to  restore  it  within  a  reasonable 
time,  and  recover  the  price  paid. ' ' 

Question  385:  May  one  who  has  received  goods  under  an 
express  warranty,  afterwards  on  discovering  a  breach  thereof, 
return  the  goods  or  must  he  keep  them  and  sue  on  the  warranty  ? 
Are  the  authorities  in  harmony  on  this  point  ? 

Case  No.  386.    Eichelroth  v.  Long,  156  111.  Ap.  108. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  Whether,  if  the  contract  provides  that 
the  goods  purchased  shall  be  returned  within  a  certain 
time  in  case  they  are  not  in  fulfillment  of  the  warranty, 


REMEDIES  OF  BUYER  S79 

the  buyer's  remedies  for  breach  of  warranty  are  thereby 
limited. 


Mb.  Justice  Putekbaugh:  "Upon  an  appeal  of  this 
cause  from  a  justice  of  the  peace,  appellee  recovered  judg- 
ment against  appellant  in  the  circuit  court  for  $138.16. 
The  suit  is  based  upon  a  note  dated  June  22,  1908,  pay- 
able on  or  before  September  1,  1908,  to  International 
Harvester  Company  of  America,  for  the  sum  of  $130  with 
six  per  cent  interest  and  signed  by  appellant.  The  note 
was  given  in  payment  for  a  binder  sold  to  appellant  by 
appellee,  who  was  the  agent  of  the  Harvester  Company, 
in  April,  1908.  The  order  for  the  binder  contains  the 
following  warranty: 

11  'International  Harvester  Company  of  America  (in- 
corporated) warrants  the  above  machine  to  do  good  work, 
to  be  well  made  of  good  materials,  and  durable  if  used 
with  proper  care.  If,  upon  one  day's  trial  with  proper 
care,  the  machine  fails  to  work  well,  the  purchaser  shall 
immediately  give  written  notice  to  International  Har- 
vester Company  of  America  at  7  Monroe  Street,  Chicago, 
Illinois,  and  to  the  agent  above  named,  stating  wherein 
the  machine  fails,  shall  allow  reasonable  time  for  a  com- 
petent man  to  be  sent  to  put  it  in  good  order  and  render 
necessary  and  friendly  assistance  to  operate  it.  If  the 
machine  cannot  be  made  to  work  well,  the  purchaser  shall 
immediately  return  it  to  said  agent  and  the  price  shall  be 
refunded  which  shall  constitute  a  settlement  in  full  of 
the  transaction.  Use  of  the  machine  after  one  day  (or 
harvesting  more  than  twelve  acres),  or  failure  to  give 
written  notice  to  said  Company  and  its  agent,  or  failure 
to  return  the  machine,  as  above  specified,  shall  operate 
as  an  acceptance  of  the  machine  and  fulfillment  of  this 
warranty.  No  agent  has  power  to  change  the  contract  of 
warranty  in  any  respect,  and  the  above  order  can  be  can- 
celed only  by  said  Company's  Chicago  office.  This  ex- 
press warranty  excludes  all  implied  warranties,  and  said 
Company  shall  in  no  event  be  liable  for  breach  of  war- 


580  SALES 

ranty  in  an  amount  exceeding  the  purchase  price  of  the 
machine. 

(Signed)     "  «P.  M.Long. 

"  'Dated  the  22nd  day  of  April,  1908. 

"  'Sold  by  E.  O.  Eichelroth.' 

' '  The  evidence  shows  that  apellee,  who  was  the  agent  of 
the  International  Harvester  Company  at  Litchfield,  Illi- 
nois, procured  the  order  and  note  in  question ;  that  said 
note  was  afterward  transferred  by  endorsement  to  ap- 
pellee ;  that  the  binder  was  delivered  to  the  son  of  appel- 
lant and  that  he  began  to  cut  wheat  with  it  about  noon 
on  the  same  day ;  that  the  machine  failed  to  operate  prop- 
erly ;  that  upon  the  first  or  second  day  after  its  delivery, 
the  trip  hammer  broke,  whereupon  appellant  notified  ap- 
pellee and  requested  him  to  call  and  examine  and  repair 
the  machine ;  that  a  few  days  later  he  called  upon  appel- 
lant at  his  office  in  Litchfield,  and  complained  that  the 
machine  did  not  do  good  work,  and  that  appellee  promised 
to  send  a  man  to  repair  the  machine,  and  told  appellant 
to  go  ahead  and  use  it  in  the  meantime ;  that  appellant  con- 
tinued to  use  the  machine  through  the  harvest  after  which 
time  appellee  sent  an  agent  out,  who  attempted  to  adjust 
the  same  so  that  it  would  work  satisfactorily ;  that  appel- 
lant claimed  the  machine  failed  to  do  the  work  according 
to  the  warranty  and  offered  to  return  it  to  appellee,  but 
that  appellee  refused  to  accept  the  same  and  brought  this 
suit. 

"At  the  close  of  all  the  evidence  the  Court  instructed 
the  jury  to  return  a  verdict  for  the  plaintiff  for  the 
amount  of  the  note  and  interest. 

"We  do  not  think  it  necessary  to  determine  whether  or 
not  the  claim  of  appellant  that  the  machine  failed  to  do 
good  work  as  warranted,  is  established  by  the  evidence, 
for  the  reason  that  upon  the  alleged  failure  of  the  machine 
to  work  well  after  one  day's  trial,  appellant  failed  to  com- 
ply with  the  terms  of  the  contract  by  immediately  giving 
notice  of  such  fact  to  either  the  Harvester  Company  or  to 
appellee,  or  by  returning  the  machine  to  appellee  as  agent 


REMEDIES  OF  BUYER  581 

within  a  reasonable  time.  The  evidence  shows  that  no 
notice  of  any  character  was  given  to  the  Harvester  Com- 
pany, and  it  does  not  appear  that  such  Company  was 
ever  advised  of  appellant's  complaint  that  the  machine 
failed  to  work.  The  evidence  further  discloses  that  in- 
stead of  returning  the  machine  to  appellee  upon  discover- 
ing its  alleged  defects,  appellant  kept  and  used  it  the 
entire  season,  cutting  in  all  about  100  acres  of  grain. 

"It  is  well  settled  where  one  seeks  to  enforce  a  war- 
ranty imposing  mutual  and  dependent  obligations  and 
covenants,  he  who  seeks  to  enforce  it  must  show  com- 
pliance on  his  part  before  he  can  insist  upon  performance 
by  his  adversary.  The  clauses  in  the  warranty  relative 
to  notice  and  return  are  material  and  substantial  parts 
of  it,  and  are  for  the  protection  of  the  seller,  and  the  pur- 
chaser is  no  more  at  liberty  to  disregard  them  than  he 
is  any  other  clause  of  his  contract.  When  appellant  made 
this  contract  he  agreed  that  he  would  satisfy  himself 
within  one  day  whether  the  binder  worked  to  his  satis- 
faction and  filled  the  warranty,  and  further  that  if  it  did 
not,  he  would  at  once  give  the  notice  required  by  the  con- 
tract, and  that  if  he  failed  to  give  such  notice,  such  fail- 
ure should  operate  as  an  acceptance  of  the  machinery  and' 
fulfillment  of  the  warranty.  The  provisions  in  the  con- 
tract are  plain,  and  need  no  construction.     *     *     * ' ' 

Question  386:  State  the  defense  in  this  case  and  how  it  was 
disposed  of. 

(Note :  Some  courts  make  a  distinction  between  general  and 
limited  warranties  in  this  class  of  cases.  Thus  a  promise  that  the 
machine  is  of  a  certain  kind  of  material  and  that  it  must  be 
returned  in  case  it  does  not  work  well  upon  a  test  being  made 
contains  (as  said  in  these  cases)  two  warranties,  upon  the  breach 
of  one  of  which  the  goods  must  be  returned,  but  for  the  breach  of 
the  other  (defective  material)  there  may  be  a  suit  for  damages. 
Thus,  McCormick  Harvesting  Co.  v.  Fields,  90  Minn.  161.) 

Case  No.  387.   McCormick  v.  Dunville,  36  la.  645. 
Facts :   Sale  of  a  machine,  warranty  that  it  will  operate 
in  a  certain  manner,  and  if  it  does  not,  seller  will  take  it 


582  SALES 

back  and  refund  money.  Suit  to  recover  price  of 
the  machine.  Cross-claim  by  defendant  on  breach  of 
warranty. 

Point  Involved:  Whether,  in  case  of  a  warranty  with 
right  to  return  if  the  warranty  is  broken,  the  buyer  may 
keep  the  article  and  sue  for  damages  from  breach  of 
warranty. 

Day,  J.:  "*  *  *  Plaintiff,  through  his  agent, 
agreed  to  take  the  machine  back  if  it  did  not  work  as 
warranted ;  but  it  does  not  seem  that  it  was  made  a  con- 
dition of  the  defendant's  right  of  recovery  for  a  breach 
of  the  warranty,  that  he  should  return  or  offer  to  return 
the  machine.  In  this  respect  the  warranty  differs  from 
that  contained  in  Bomberger,  Wright  &  Co.  v.  Greiner,  18 
Iowa,  477,  in  which  there  was  an  express  agreement  that 
the  machine  should  be  returned  if  it  failed  to  work  as 
warranted.     *     *     *" 

Question  387:  How  does  this  case  differ  from  the  foregoing 
case? 

Case  No.  388.  Sanford  v.  Brown  Bros.  Co.,  208  N.  Y. 
90,50L.R.A.N.S.778. 

Facts:  Suit  brought  to  recover  damages  for  breach  of 
a  warranty  in  sale  of  fruit  trees.  The  defendant  is  a 
corporation  engaged  in  the  nursery  business.  Plaintiff 
is  a  farmer.  He  had  never  had  any  experience  in  the 
growing  of  peaches.  He  decided  to  plant  25  acres  of 
land  in  peach  trees  and  bought  the  trees  from  defendant 
under  a  contract  by  which  it  was  provided  that  if  any  of 
the  trees  did  not  prove  to  be  true  to  name,  they  were  to 
be  replaced  free.  This  took  place  in  1902.  In  1905,  "con- 
cededly  as  early  a  date  as  discovery  could  be  made," 
2,700  of  the  trees  were  found  to  be  of  a  different  variety 
than  those  ordered.  Plaintiff  sues  for  damages.  Defend- 
ant contends  that  the  plaintiff's  exclusive  remedy  is  to 
have  the  trees  replaced.  It  is  conceded  that  there  was 
no  fraud  on  the  part  of  the  seller. 


REMEDIES  OF  BUYER  583 

Point  Involved:  That  a  contract  providing  a  remedy 
of  the  nature  stated  will  be  construed  according  to  the 
evident  intention  of  the  parties  as  shown  by  all  the  sur- 
rounding facts  and  circumstances. 

Hogan  J.:  "It  is  alleged  by  counsel  for  appellant 
that  the  language  used  in  the  contract,  'any  stock  which 
does  not  prove  to  be  true  to  name  as  labeled  is  to  be  re- 
placed free,  or  purchase  price  refunded,'  should  be  con- 
strued as  a  limited  liability  on  the  part  of  the  defendant 
for  any  damage  resulting  under  the  contract.  In  support 
of  the  reasonableness  of  such  construction  stress  was  laid 
upon  the  absence  of  fraud  or  misrepresentation  in  the 
sale ;  that  in  view  of  the  price,  the  trees,  which  were  two 
years  old,  substantially  all  budded,  were  sold,  8y2  cents 
each,  out  of  which  defendant  paid  the  expense  of  boxing, 
freight,  and  agent's  commissions,  no  nursery  would  or 
could  have  sold  trees  at  such  a  price  and  assume  risk 
greater  than  that  specified  in  the  contract,  especially 
when  such  dealer  had  no  more  means  of  knowing  that  the 
variety  of  peaches  were  as  labeled  than  that  possessed 
by  the  purchaser. 

"The  form  of  contract  was  furnished  by  the  defendant, 
and  under  well-established  principles,  any  doubt  as  to 
the  meaning  of  the  terms  employed  must  be  resolved  in 
favor  of  the  plaintiff.  The  defendant  was  engaged  in  the 
nursery  business,  for  how  long  a  time  does  not  appear, 
except  by  implication.  Mr.  Brown,  the  president  of  de- 
fendant, testified  that  he  had  been  in  the  nursery  business 
twenty-five  or  twenty-six  years,  and  we  may  assume  that 
the  defendant  corporation  succeeded,  in  whole  or  in  part, 
to  his  business.  The  plaintiff  was  a  farmer  without 
previous  experience  in  the  culture  of  peaches;  he  could 
not  discover  for  a  period  of  three  or  four  years  the 
variety  of  peaches,  if  any,  the  trees  would  bear.  When 
he  purchased  the  trees,  he  was  justified  in  relying  upon 
the  superior  knowledge  of  the  defendant  as  to  the  quality 
of  the  trees  to  be  selected  and  furnished  by  defendant. 
The  defendant  was  chargeable  with  notice  of  the  purpose 


584  SALES 

for  which  the  trees  were  to  be  used,  and  also  had  knowl- 
edge that  the  trees  would  not  attain  to  the  bearing  point 
for  a  period  of  three  or  four  years,  during  which  time 
plaintiff  would  be  required  to  devote  his  time,  together 
with  labor  and  expense,  to  the  cultivation  of  the  orchard. 
It  would  be  unreasonable  to  hold,  under  the  terms  of  this 
contract,  that  at  the  end  of  three  years,  should  the  trees 
prove  valueless,  the  only  obligation  was  to  furnish  a 
supply  of  new  trees,  or  refund  the  purchase  price.  In 
such  a  case,  while  defendant  would  sustain  a  loss  to  the 
extent  of  the  original  cost  of  the  trees,  the  loss  to  plaintiff 
in  the  use  of  land,  expenses  of  cultivation,  etc.,  might 
prove  very  substantial. 

' '  The  judgment  should  be  affirmed,  with  costs. ' ' 

Question  388:     (1.)     State  the  facts  in  this  case,  the  question 
presented  and  the   Court's  decision. 

Sec.  294.   Interest  and  Special  Damages. 

Case  No.  389.    Uniform  Sales  Act,  Sec.  70. 
(See  page  602,  post.) 


APPENDIX  TO  DIVISION  0 

UNIFORM  SALES  ACT 
PARTI. 

FOBMATION   OP  THE  CONTRACT. 

Section  1.  (Contracts  to  Sell  and  Sales.)  (1)  A  contract  to  sell  goods 
is  a  contract  whereby  the  seller  agrees  to  transfer  the  property  in  goods  to 
the  buyer  for  a  consideration  called  the  price. 

(2)  A  sale  of  goods  is  an  agreement  whereby  the  seller  transfers  the 
property  in  goods  to  the  buyer  for  a  consideration  called  the  price. 

(3)  A  contract  to  sell  or  a  sale  may  be  absolute  or  conditional. 

(4)  There  may  be  a  contract  to  sell  or  a  sale  between  one  part  ownel 
and  another. 

Section  2.  (Capacity — Liabilities  for  Necessaries.)  Capacity  to  buy 
and  sell  is  regulated  by  the  general  law  concerning  capacity  to  contract,  and 
to  transfer  and  acquire  property. 

Where  necessaries  are  sold  and  delivered  to  an  infant,  or  to  a  person 
who  by  reason  of  mental  incapacity  or  drunkenness  is  incompetent  to 
contract,  he  must  pay  a  reasonable  price  therefor. 

Necessaries  in  this  section  means  goods  suitable  to  the  condition  in  life 
of  such  infant  or  other  person,  and  to  his  actual  requirements  at  the  time 
of  delivery. 

Section  3.  (Form  of  Contract  or  Sale.)  Subject  to  the  provisions  of 
this  act  and  of  any  statute  in  that  behalf,  a  contract  to  sell  or  a  sale  may 
be  made  in  writing  (either  with  or  without  seal),  or  by  word  of  mouth,  or 
partly  in  writing  and  partly  by  word  of  mouth,  or  may  be  inferred  from 
the  conduct  of  the  parties. 

Section  4.  (Statute  of  Frauds.)  (1)  A  contract  to  sell  or  a  sale  of 
any  goods  or  choses  in  action  of  the  value  of  five  hundred  dollars  or  up- 
ward shall  not  be  enforceable  by  action  unless  the  buyer  shall  accept  part 
of  the  goods  or  choses  in  action  so  contracted  to  be  sold  or  sold,  and  actu- 
ally receive  the  same,  or  give  something  in  earnest  to  bind  the  contract, 
or  in  part  payment,  or  unless  some  note  or  memorandum  in  writing  of 
the  contract  or  sale  be  signed  by  the  party  to  be  charged  or  his  agent 
in  that  behalf. 

(2)  The  provisions  of  this  section  apply  to  every  such  contract  or  sale, 
notwithstanding  that  the  goods  may  be  intended  to  be  delivered  at  some 
future  time  or  may  not  at  the  time  of  such  contract  or  sale  be  actually  made, 

585 


586  SALES 

procured,  or  provided,  or  fit  or  ready  for  delivery,  or  some  act  may  be  requi- 
site for  the  making  or  completing  thereof,  or  rendering  the  same  fit  for 
delivery;  but  if  the  goods  are  to  be  manufactured  by  the  seller  especially 
for  the  buyer  and  are  not  suitable  for  sale  to  others  in  the  ordinary  course 
of  the  seller's  business,  the  provisions  of  this  section  shall  not  apply. 

(3)  There  is  an  acceptance  of  goods  within  the  meaning  of  this  section 
when  the  buyer,  either  before  or  after  delivery  of  the  goods,  expresses  by 
words  or  conduct  his  assent  to  becoming  the  owner  of  those  specific  goods. 

Section  5.  (Existing  and  Future  Goods.)  (1)  The  goods  which  form 
the  subject  of  a  contract  to  sell  may  be  either  existing  goods,  owned  or 
possessed  by  the  seller,  or  goods  to  be  manufactured  or  acquired  by  the 
seller  after  the  making  of  the  contract  to  sell,  in  this  act  called  "future 
goods. ' ' 

(2)  There  may  be  a  contract  to  sell  goods,  the  acquisition  of  which 
by  the  seller  depends  upon  a  contingency  which  may  or  may  not  happen. 

(3)  Where  the  parties  purport  to  effect  a  present  sale  of  future  goods, 
the  agreement  operates  as  a  contract  to  sell  the  goods. 

Secion  6.  (Undivided  Shares.)  (1)  There  may  be  a  contract  to  sell 
or  a  sale  of  an  undivided  share  of  goods.  If  the  parties  intend  to  effect  a 
present  sale,  the  buyer,  by  force  of  the  agreement,  becomes  an  owner  in 
common  with  the  owner  or  owners  of  the  remaining  shares. 

(2)  In  the  case  of  fungible  goods,  there  may  be  a  sale  of  an  undivided 
share  of  specific  mass,  though  the  seller  purports  to  sell  and  the  buyer  to 
buy  a  definite  number,  weight  or  measure  of  the  goods  in  the  mass,  and 
though  the  number,  weight  or  measure  of  the  goods  in  the  mass  is  undeter- 
mined. By  such  a  sale  the  buyer  becomes  owner  in  common  of  such  a  share 
or  the  mass  as  the  number,  weight  or  measure  bought  bears  to  the  number, 
weight  or  measure  of  the  mass.  If  the  mass  contains  less  than  the  number, 
weight  or  measure  bought,  the  buyer  becomes  the  owner  of  the  whole  mass 
and  the  seller  is  bound  to  make  good  the  deficiency  from  similar  goods  unless 
a  contrary  intent  appears. 

Section  7.  (Destruction  of  Goods  Sold.)  (1)  Where  the  parties  pur- 
port to  sell  specific  goods,  and  the  goods  without  the  knowledge  of  the  seller 
have  wholly  perished  at  the  time  when  the  agreement  is  made,  the  agreement 
is  void. 

(2)  Where  the  parties  purport  to  sell  specific  goods,  and  the  goods  with- 
out the  knowledge  of  the  seller  have  perished  in  part  or  have  wholly  or  in  a 
material  part  so  deteriorated,  in  quality  as  to  be  substantially  changed  in 
character,  the  buyer  may  at  his  option  treat  the  sale — 

(a)  As  avoided,  or 

(b)  As  transferring  the  property  in  all  of  the  existing  goods  or  in  so 
much  thereof  as  have  not  deteriorated,  and  as  binding  the  buyer  to  pay  the 
full  agreed  price  if  the  sale  was  indivisible  or  to  pay  the  agreed  price  for 
the  goods  in  which  the  property  passes  if  the  sale  was  divisible. 

Section  8.  (Destruction  of  Goods  Contracted  to  be  Sold.)  (1)  Where 
there  is  a  contract  to  sell  specific  goods,  and  subsequently  but  before  the  risk 
passes  to  the  buyer,  without  any  fault  on  the  part  of  the  seller  or  the  buyer, 
the  goods  wholly  perish,  the  contract  is  thereby  avoided. 

(2)  Where  there  is  a  contract  to  sell  specific  goods,  and  subsequently, 
but  before  the  risk  passes  to  the  buyer,  without  any  fault  of  the  seller  or  the 
buyer,  part  of  the  goods  perish  or  the  whole  or  a  material  part  of  the  goods 


APPENDIX  TO  DIVISION  C  587 

so  deteriorate  in  quality  as  to  be  substantially  changed  in  character,  the 
buyer  may  at  his  option  treat  the  contract — 

(a)  As  avoided,  or 

(b)  As  binding  the  seller  to  transfer  the  property  in  all  of  the  existing 
goods  or  in  so  much  thereof  as  have  not  deteriorated,  and  as  binding  the 
buyer  to  pay  the  full  agreed  price  if  the  contract  was  indivisible,  or  to  pay 
the  agreed  price  for  so  much  of  the  goods  as  the  seller,  by  the  buyer 's  option, 
is  bound  to  transfer  if  the  contract  was  divisible. 

Section  9.  (Definition  and  Ascertainment  of  Price.)  (1)  The  price 
may  be  fixed  by  the  contract,  or  may  be  left  to  be  fixed  in  such  manner  as 
may  be  agreed,  or  it  may  be  determined  by  the  course  of  dealing  between  the 
parties. 

(2)  The  price  may  be  made  payable  in  any  personal  property. 

(3)  Where  transferring  or  promising  to  transfer  any  interest  in  real 
estate  constitutes  the  whole  or  part  of  the  consideration  for  transferring  or 
for  promising  to  transfer  the  property  in  goods,  this  act  shall  not  apply. 

(4)  Where  the  price  is  not  determined  in  accordance  with  the  foregoing 
provisions  the  buyer  must  pay  a  reasonable  price.  What  is  a  reasonable  price 
is  a  question  of  fact  dependent  on  the  circumstances  of  each  particular  case. 

Section  10.  (Sale  at  a  Valuation.)  (1)  Where  there  is  a  contract  to 
sell  or  a  sale  of  goods  at  a  price  or  on  terms  to  be  fixed  by  a  third  person, 
and  such  third  person  without  fault  of  the  seller  or  the  buyer,  cannot  or  does 
not  fix  the  price  or  terms,  the  contract  or  the  sale  is  thereby  avoided;  but  if 
the  goods  or  any  part  thereof  have  been  delivered  to  and  appropriated  by 
the  buyer  he  must  pay  a  reasonable  price  therefor. 

(2)  Where  such  third  person  is  prevented  from  fixing  the  price  or  terms 
by  fault  of  the  seller  or  the  buyer,  the  party  not  in  fault  may  have  such 
remedies  against  the  party  in  fault  as  are  allowed  by  Parts  IV  and  V  of 
this  act. 

Section  11.  (Effect  of  Conditions.)  (1)  Where  the  obligation  of  either 
party  to  a  contract  to  sell  or  a  sale  is  subject  to  any  condition  which  is  not 
performed,  such  party  may  refuse  to  proceed  with  the  contract  or  sale  or 
he  may  waive  performance  of  the  condition.  If  the  other  party  has  promised 
that  the  condition  should  happen  or  be  performed,  such  first-mentioned  party 
may  also  treat  the  non-performance  of  the  condition  as  a  breach  of  warranty. 

(2)  Where  the  property  in  the  goods  has  not  passed,  the  buyer  may  treat 
the  fulfillment  by  the  seller  of  his  obligation  to  furnish  goods  as  described 
and  as  warranted  expressly  or  by  implication  in  the  contract  to  sell  as  a 
condition  of  the  obligation  of  the  buyer  to  perform  his  promise  to  accept 
and  pay  for  the  goods. 

Section  12.  (Definition  of  Express  Warranty.)  Any  affirmation  of  fact 
or  any  promise  by  the  seller  relating  to  the  goods  in  an  express  warranty  if 
the  natural  tendency  of  such  affirmation  or  promise  is  to  induce  the  buyer 
to  purchase  the  goods,  and  if  the  buyer  purchases  the  goods  relying  thereon. 
No  affirmation  of  the  value  of  the  goods  nor  any  statement  purporting  to 
be  a  statement  of  the  seller's  opinion  only  shall  be  construed  as  a 
warranty. 

Section  13.     (Implied  Warranties  of  Title.)     In  a  contract  to  sell  or  a 
sale,  unless  a  contrary  intention  appears,  there  is — 

(1)     An  implied  warranty  on  the  part  of  the  seller  that  in  case  of  a  sale 


588  SALES 

he  has  a  right  to  sell  the  goods,  and  that  in  ease  of  a  contract  to  sell  he  will 
have  a  right  to  sell  the  goods  at  the  time  when  the  property  is  to  pass. 

(2)  An  implied  warranty  that  the  buyer  shall  have  and  enjoy  quiet  pos- 
session of  the  goods  as  against  any  lawful  claims  existing  at  the  time  of 
the  sale. 

(3)  An  implied  warranty  that  the  goods  shall  be  free  at  the  time  of  the 
sale  from  any  charge  or  incumbrance  in  favor  of  any  third  person,  not  de- 
clared or  known  to  the  buyer  before  or  at  the  time  when  the  contract  or  sale 
is  made. 

(4)  This  section  shall  not,  however,  be  held  to  render  liable  a  sheriff, 
auctioneer,  mortgagee,  or  other  persons  professing  to  sell  by  virtue  of  author- 
ity in  fact  or  law  goods  in  which  a  third  person  has  a  legal  or  equitable 
interest. 

Section  14.  (Implied  Warranty  in  Sale  by  Description.)  Where  there 
is  a  contract  to  sell  or  a  sale  of  goods  by  description,  there  is  an  implied 
warranty  that  the  goods  shall  correspond  with  the  description  and  if  the 
contract  or  sale  be  by  sample,  as  well  as  by  description,  it  is  not  sufficient 
that  the  bulk  of  the  goods  corresponds  with  the  sample  if  the  goods  do  not 
also  correspond  with  the  description. 

Section  15.  (Implied  Warranties  of  Quality.)  Subject  to  the  provi- 
sions of  this  act  and  of  any  statute  in  that  behalf,  there  is  no  implied  war- 
ranty or  condition  as  to  the  quality  or  fitness  for  any  particular  purpose 
of  goods  supplied  under  a  contract  to  sell  or  a  sale,  except  as  follows: 

(1)  Where  the  buyer,  expressly  or  by  implication,  makes  known  to  the 
seller  the  particular  purpose  for  which  the  goods  are  required,  and  it  ap- 
pears that  the  buyer  relies  on  the  seller's  skill  or  judgment  (whether  he 
be  the  grower  or  manufacturer  or  not),  there  is  an  implied  warranty  that 
the  goods  shall  be  reasonably  fit  for  such  purpose. 

2.  Where  the  goods  are  bought  by  description  from  a  seller  who  deals 
in  goods  of  that  description  (whether  he  be  the  grower  or  manufacturer 
or  not),  there  is  an  implied  warranty  that  the  goods  shall  be  of  merchant- 
able quality. 

(3)  If  the  buyer  has  examined  the  goods,  there  is  no  implied  warranty 
as  regards  defects  which  such  examination  ought  to  have  revealed. 

(4)  In  the  case  of  a  contract  to  sell  or  a  sale  of  a  specified  article 
under  its  patent  or  other  trade  name,  there  is  no  implied  warranty  as  to 
its  fitness  for  any  particular  purpose. 

(5)  An  implied  warranty  or  condition  as  to  quality  or  fitness  for  a 
particular  purpose  may  be  annexed  by  the  usage  of  trade. 

(6)  An  express  warranty  or  condition  does  not  negative  a  warranty 
or  condition  implied  under  this  act  unless  inconsistent  therewith. 

Section  16.  (Implied  Warranties  in  Sale  by  Sample.)  In  the  case  of 
a  contract  to  sell  or  a  sale  by  sample: 

(a)  There  is  an  implied  warranty  that  the  bulk  shall  correspond  with 
the  sample  in  quality. 

(b)  There  is  an  implied  warranty  that  the  buyer  shall  have  a  reasonable 
opportunity  of  comparing  the  bulk  with  the  sample,  except  so  far  as  other- 
wise provided  in  section  47   (3). 

(c)  If  the  seller  is  a  dealer  in  goods  of  that  kind,  there  is  an  implied 


APPENDIX  TO  DIVISION  C  589 

warranty  that  the  goods  shall  be  free  from  any  defect  rendering  them  un- 
merchantable which  would  not  be  apparent  on  reasonable  examination  of 
the  sample. 


PART  n. 

Transfer  of  Property  and  Title. 

Section  17.  (No  Property  Passes  until  Goods  are  Ascertained.)  Where 
there  is  a  contract  to  sell  unascertained  goods  no  property  in  the  goods  is 
transferred  to  the  buyer  unless  and  until  the  goods  are  ascertained,  but 
property  in  an  undivided  share  of  ascertained  goods  may  be  transferred  as 
provided  in  section  6. 

Section  18.  (Property  in  Specific  Goods  Passes  when  Parties  so  In- 
tend.) (1)  Where  there  is  a  contract  to  sell  specific  or  ascertained  goods, 
the  property  in  them  is  transferred  to  the  buyer  at  such  time  as  the  parties 
to  the  contract  intend  it  to  be  transferred. 

(2)  For  the  purpose  of  ascertaining  the  intention  of  the  parties  regard 
shall  be  had  to  the  terms  of  the  contract,  the  conduct  of  the  parties,  usages 
of  trade  and  the  circumstances  of  the  case. 

Section  19.  (Rules  for  Ascertaining  Intention.)  Unless  a  different  in- 
tention appears,  the  following  are  rules  for  ascertaining  the  intention  of 
the  parties,  as  to  the  time  at  which  the  property  in  the  goods  is  to  pass 
to  the  buyer. 

Eule  1.  Where  there  is  an  unconditional  contract  to  sell  specific  goods, 
in  a  deliverable  state,  the  property  in  the  goods  passes  to  the  buyer  when 
the  contract  is  made,  and  it  is  immaterial  whether  the  time  of  payment, 
or  the  time  of  delivery,  or  both,  be  postponed. 

Rule  2.  Where  there  is  a  contract  to  sell  specific  goods  and  the  seller 
is  bound  to  do  something  to  the  goods,  for  the  purpose  of  putting  them 
into  a  deliverable  state,  the  property  does  not  pass  until  such  thing  be 
done. 

Rule  3.  (1)  When  the  goods  are  delivered  to  the  buyer  "on  sale  or 
return,"  or  on  other  terms  indicating  an  intention  to  make  a  present 
sale,  but  to  give  the  buyer  an  option  to  return  the  goods  instead  of  pay- 
ing the  price,  the  property  passes  to  the  buyer  on  delivery,  but  he  may 
revest  the  property  in  the  seller  by  returning  or  tendering  the  goods  within 
the  time  fixed  in  the  contract,  or,  if  no  time  has  been  fixed,  within  a  rea- 
sonable time. 

(2)  When  goods  are  delivered  to  the  buyer  on  approval  or  on  trial 
or  on  satisfaction,  or  other  similar  terms,  the  property  therein  passes  to  the 
buyer — 

(a)  When  he  signifies  his  approval  or  acceptance  to  the  seller  or  does 
any  other  act  adopting  the  transaction. 

(b)  If  he  does  not  signify  his  approval  or  acceptance  to  the  seller 
but  retains  the  goods  without  giving  notice  of  rejection,  then  if  a  time 
has  been  fixed  for  the  return  of  the  goods,  on  the  expiration  of  such  time, 
and,  if  no  time  has  been  fixed,  on  the  expiration  of  a  reasonable  time. 
What  is  a  reasonable  time  is  a  question  of  fact. 

Rule  4.     (1)     Where  there  is  a  contract  to  sell  unascertained  or  future 


590  SALES 

goods  by  description,  and  goods  of  that  description  and  in  a  deliverable 
state  are  unconditionally  appropriated  to  the  contract,  either  by  the  seller 
with  the  assent  of  the  buyer,  or  by  the  buyer  with  the  assent  of  the  seller, 
the  property  in  the  goods  thereupon  passes  to  the  buyer.  Such  assent  may 
be  expressed  or  implied,  and  may  be  given  either  before  or  after  the  ap- 
propriation is  made. 

(2)  Where,  in  pursuance  of  a  contract  to  sell,  the  seller  delivers  the 
goods  to  the  buyer,  or  to  a  carrier  or  other  bailee  (whether  named  by 
the  buyer  or  not)  for  the  purpose  of  transmission  to  or  holding  for  the 
buyer,  he  is  presumed  to  have  unconditionally  appropriated  the  goods  to 
the  contract,  except  in  cases  provided  for  in  the  next  rule  and  in  section 
20.  This  presumption  is  applicable,  although  by  the  terms  of  the  contract, 
the  buyer  is  to  pay  the  price  before  receiving  delivery  of  the  goods,  and 
the  goods  are  marked  with  the  words  "collect  on  delivery"  or  their  equiva- 
lents. 

Eule  5.  If  the  contract  to  sell  requires  the  seller  to  deliver  the  goods 
to  the  buyer,  or  at  a  particular  place,  or  to  pay  the  freight  or  cost  of 
transportation  to  the  buyer,  or  to  a  particular  place,  the  property  does  not 
pass  until  the  goods  have  been  delivered  to  the  buyer  or  reached  the  place 
agreed  upon. 

Section  20.  (Reservation  of  Eight  of  Possession  or  Property  when 
Goods  are  Shipped.)  (1)  Where  there  is  a  contract  to  sell  specific  goods, 
or  where  goods  are  subsequently  appropriated  to  the  contract,  the  seller 
may,  by  the  terms  of  the  contract  or  appropriation,  reserve  the  right  of 
possession  or  property  in  the  goods  until  certain  conditions  have  been 
fulfilled.  The  right  of  possession  or  property  may  be  thus  reserved  not- 
withstanding the  delivery  of  the  goods  to  the  buyer  or  to  a  carrier  or  other 
bailee  for  the  purpose  of  transmission  to  the  buyer. 

(2)  Where  goods  are  shipped,  and  by  the  bill  of  lading  the  goods 
are  deliverable  to  the  seller  or  his  agent,  or  to  the  order  of  the  seller  or 
his  agent,  the  seller  thereby  reserves  the  property  in  the  goods.  But  if, 
except  for  the  form  of  the  bill  of  lading,  the  property  would  have  passed 
to  the  buyer  on  shipment  of  the  goods,  the  seller's  property  in  the  goods 
shall  be  deemed  to  be  only  for  the  purpose  of  securing  performance  by  the 
buyer  of  his  obligations  under  the  contract. 

(3)  Where  goods  are  shipped,  and  by  the  bill  of  lading  the  goods 
are  deliverable  to  the  order  of  the  buyer  or  of  his  agent,  but  possession 
of  the  bill  of  lading  is  retained  by  the  seller  or  his  agent,  the  seller  thereby 
reserves  a  right  to  the  possession  of  the  goods  as  against  the  buyer. 

(4)  Where  the  seller  of  goods  draws  on  the  buyer  for  the  price  and 
transmits  the  bill  of  exchange  and  bill  of  lading  together  to  the  buyer  to 
secure  acceptance  or  payment  of  the  bill  of  exchange,  the  buyer  is  bound 
to  return  the  bill  of  lading  if  he  does  not  honor  the  bill  of  exchange,  and 
if  he  wrongfully  retains  the  bill  of  lading  he  acquires  no  added  right 
thereby.  If,  however,  the  bill  of  lading  provides  that  the  goods  are  de- 
liverable to  the  buyer  or  to  the  order  of  the  buyer,  or  is  indorsed  in  blank, 
or  to  the  buyer  by  the  consignee  named  therein,  one  who  purchases  in  good 
faith,  for  value,  the  bill  of  lading,  or  goods  from  the  buyer  will  obtain 
the  property  in  the  goods,  although  the  bill  of  exchange  has  not  been  hon- 
ored, provided  that  such  purchaser  has  received  delivery  of  the  bill  of  lading 


APPENDIX  TO  DIVISION  C  591 

indorsed  by  the  consignee  named  therein,  or  of  the  goods,  without  notice 
of  the  facts  making  the  transfer  wrongful. 

Section  21.     (Sale  by  Auction.)     In  the  case  of  sale  by  auction — 

(1)  Where  goods  are  put  up  for  sale  by  auction  in  lots,  each  lot  is  the 
subject  of  a  separate  contract  of  sale. 

(2)  A  sale  by  auction  is  complete  when  the  auctioneer  announces  its 
completion  by  the  fall  of  the  hammer,  or  in  other  customary  manner.  Until 
such  announcement  is  made,  any  bidder  may  retract  his  bid;  and  the  auc- 
tioneer may  withdraw  the  goods  from  sale  unless  the  auction  has  been  an- 
nounced to  be  without  reserve. 

(3)  A  right  to  bid  may  be  reserved  expressly  by  or  on  behalf  of  the 
seller. 

(4)  Where  notice  has  not  been  given  that  a  sale  by  auction  is  sub- 
ject to  a  right  to  bid  on  behalf  of  the  seller,  it  shall  not  be  lawful  for 
the  seller  to  bid  himself  or  to  employ  or  induce  any  person  to  bid  at  such 
sale  on  his  behalf,  or  for  the  auctioneer  to  employ  or  induce  any  person 
to  bid  at  such  sale  on  behalf  of  the  seller  or  knowingly  take  any  bid  from 
the  seller  or  any  person  employed  by  him.  Any  sale  contravening  this  rule 
may  be  treated  as  fraudulent  by  the  buyer. 

Section  22.  (Eisk  of  Loss.)  Unless  otherwise  agreed,  the  goods  re- 
main at  the  seller's  risk  until  the  property  therein  is  transferred  to  the 
buyer,  but  when  the  property  therein  is  transferred  to  the  buyer  the  goods 
are  at  the  buyer 's  risk  whether  delivery  has  been  made  or  not,  except  that — 

(a)  Where  the  delivery  of  the  goods  has  been  made  to  the  buyer,  or 
to  a  bailee  for  the  buyer,  in  pursuance  of  the  contract  and  the  property 
in  the  goods  has  been  retained  by  the  seller  merely  to  secure  performance 
by  the  buyer  of  his  obligation  under  the  contract,  the  goods  are  at  the 
buyer's  risk  from  the  time  of  such  delivery. 

(b)  Where  delivery  has  been  delayed  through  the  fault  of  either  buyer 
or  seller  the  goods  are  at  the  risk  of  the  party  in  fault  as  regards  any 
loss  which  might  not  have  occurred  but  for  such  fault. 

Section  23.  (Sale  by  a  Person  not  the  Owner.)  (1)  Subject  to  the 
provisions  of  this  act,  where  goods  are  sold  by  a  person  who  is  not  the 
owner  thereof,  and  who  does  not  sell  them  under  the  authority  or  with 
the  consent  of  the  owner,  the  buyer  acquires  no  better  title  to  the  goods 
than  the  seller  had,  unless  the  owner  of  the  goods  is  by  his  conduct  pre- 
cluded from  denying  the  seller's  authority  to  sell. 

(2)     Nothing  in  this  act,  however,  shall  affect — 

(a)  The  provisions  of  any  factors'  acts,  recording  acts,  or  any  enact- 
ment enabling  the  apparent  owner  of  goods  to  dispose  of  them  as  if  he 
were  the  true  owner  thereof. 

(b)  The  validity  of  any  contract  to  sell  or  sale  under  any  special  com- 
mon law  or  statutory  power  of  sale  or  under  the  order  of  a  court  of  compe- 
tent jurisdiction. 

Section  24.  (Sale  by  One  Having  a  Voidable  Title.)  Where  the  seller 
of  goods  has  a  voidable  title  thereto,  but  his  title  has  not  been  avoided  at 
the  time  of  the  sale,  the  buyer  acquires  a  good  title  to  the  goods,  provided 
he  buys  them  in  good  faith,  for  value,  and  without  notice  of  the  seller's 
defect  of  title. 

Section  25.  (Sale  by  Seller  in  Possession  of  Goods  Already  Sold.) 
Where  a  person  having  sold  goods  continues  in  possession  of  the  goods,  or 


592  SALES 

of  negotiable  documents  of  title  to  the  goods,  the  delivery  or  tramfer 
by  that  person,  or  by  an  agent  acting  for  him,  of  the  goods  or  documents 
of  title  under  any  sale,  pledge,  or  other  disposition  thereof,  to  any  person 
receiving  and  paying  value  for  the  same  in  good  faith  and  without  notice 
of  the  previous  sale,  shall  have  the  same  effect  as  if  the  person  making  the 
delivery  or  transfer  were  expressly  authorized  by  the  owner  of  the  goods 
to  make  the  same. 

Section  26.  (Creditors'  Rights  against  Sold  Goods  in  Seller's  Posses- 
sion.) Where  a  person  having  sold  goods  continues  in  possession  of  the 
goods,  or  of  negotiable  documents  of  title  to  the  goods,  and  such  retention 
of  possession  is  fraudulent  in  fact  or  is  deemed  fraudulent  under  any  rule 
of  law,  a  creditor  or  creditors  of  the  seller  may  treat  the  sale  as  void. 

-Section  27.  (Definition  of  Negotiable  Document  of  Title.)  A  docu- 
ment of  title  in  which  it  is  stated  that  the  goods  referred  to  therein  will 
be  delivered  to  the  bearer,  or  to  the  order  of  any  person  named  in  such 
document,  is  a  negotiable  document  of  title. 

Section  28.  (Negotiation  of  Negotiable  Documents  by  Delivery.)  A 
negotiable  document  of  title  may  be  negotiated  by  delivery: 

(a)  Where  by  the  terms  of  the  document  the  carrier,  warehouseman 
or  other  bailee  issuing  the  same  undertakes  to  deliver  the  goods  to  the 
bearer,  or 

(b)  Where  by  the  terms  of  the  document  the  carrier,  warehouseman 
or  other  bailee  issuing  the  same  undertakes  to  deliver  the  goods  to  the 
order  of  a  specified  person,  and  such  person  or  a  subsequent  indorsee  of 
the  document  has  indorsed  it  in  blank  or  to  bearer. 

Where  by  the  terms  of  a  negotiable  document  of  title  the  goods  are 
deliverable  to  a  bearer  or  where  a  negotiable  document  of  title  has  been 
indorsed  in  blank  or  to  bearer,  any  holder  may  indorse  the  same  to  him- 
self or  to  any  other  person,  and  in  such  case  the  document  shall  there- 
after be  negotiated  only  by  the  indorsement  of  such  indorsee. 

Section  29.  (Negotiation  of  Negotiable  Documents  by  Indorsement.) 
A  negotiable  document  of  title  may  be  negotiated  by  the  indorsement  of 
the  person  to  whose  order  the  goods  are  by  the  terms  of  the  document  de- 
liverable. Such  indorsement  may  be  in  blank,  to  bearer  or  to  a  specified 
person.  If  indorsed  to  a  specified  person,  it  may  be  again  negotiated  by 
the  indorsement  of  such  person  in  blank,  to  bearer  or  to  another  specified 
person.   Subsequent  negotiation  may  be  made  in  like  manner. 

Section  30.  (Negotiable  Documents  of  Title  Marked  "Not  Nego- 
tiable.") If  a  document  of  title  which  contains  an  undertaking  by  a  car- 
rier, warehouseman  or  other  bailee  to  deliver  the  goods  to  the  bearer,  to  a 
specified  person  or  order,  or  to  the  order  of  a  specified  person,  or  which 
contains  words  of  like  import,  has  placed  upon  it  the  words  "Not  nego- 
tiable, "  "  non-negotiable ' '  or  the  like,  such  a  document  may  nevertheless 
be  negotiated  by  the  holder  and  is  a  negotiable  document  of  title  within 
the  meaning  of  this  act.  But  nothing  in  this  act  contained  shall  be  con- 
strued as  limiting  or  defining  the  effect  upon  the  obligations  of  the  car- 
rier, warehouseman,  or  other  bailee  issuing  a  document  of  title  of  placing 
thereon  the  words  "non-negotiable,"  or  the  like. 

Section  31.  (Transfer  of  Non-Negotiable  Documents.)  A  document  of 
title  which  is  not  in  such  form  that  it  can  be  negotiated  by  delivery  may  be 
transferred  by  the  holder  by  delivery  to  a  purchaser  or  donee.    A  non-nego- 


APPENDIX  TO  DIVISION  C  593 

tiable  document  cannot  be  negotiated  and  the  indorsement  of  such  a  docu- 
ment gives  the  transferee  no  additional  right. 

Section  32.  (Who  May  Negotiate  a  Document.)  A  negotiable  docu- 
ment of  title  may  be  negotiated: 

(a)  By  the  owner  thereof,  or 

(b)  By  any  person  to  whom  the  possession  or  custody  of  the  document 
has  been  entrusted  by  the  owner,  if,  by  the  terms  of  the  document  the 
bailee  issuing  the  document  undertakes  to  deliver  the  goods  to  the  order 
of  the  person  in  whom  the  possession  or  custody  of  the  document  has  been 
entrusted,  or  if  at  the  time  of  such  entrusting  the  document  is  in  such 
form  that  it  may  be  negotiated  by  delivery. 

Section  33.  .  (Eights  of  Person  to  Whom  Document  Has  Been  Nego- 
tiated.) A  person  to  whom  a  negotiable  document  of  title  has  been  duly 
negotiated  acquires  thereby — 

(a)  Such  title  to  the  goods  as  the  person  negotiating  the  document  to 
him  had  or  had  ability  to  convey  to  a  purchaser  in  good  faith  for  value 
and  also  such  title  to  the  goods  as  the  person  to  whose  order  the  goods 
were  to  be  delivered  by  the  terms  of  the  document  had  or  had  ability  to 
convey  to  a  purchaser  in  good  faith  for  value,  and 

(b)  The  direct  obligation  of  the  bailee,  issuing  the  document  to  hold 
possession  of  the  goods  for  him  according  to  the  terms  of  the  document 
as  fully  as  if  such  bailee  had  contracted  directly  with  him. 

Section  34.  (Eights  of  Person  to  Whom  Document  Has  Been  Trans- 
ferred.) A  person  to  whom  a  document  of  title  has  been  transferred,  but 
not  negotiated,  acquires  thereby,  as  against  the  transferor,  the  title  to  the 
goods,  subject  to  the  terms  of  any  agreement  with  the  transferor. 

If  the  document  is  non-negotiable,  such  person  also  acquires  the  right 
to  notify  the  bailee  who  issued  the  document  of  the  transfer  thereof,  and 
thereby  acquire  the  direct  obligation  of  such  bailee  to  hold  possession  of  the 
goods  for  him  according  to  the  terms  of  the  document. 

Prior  to  the  notification  of  such  bailee  by  the  transferor  or  transferee 
of  a  non-negotiable  document  of  title  the  title  of  the  transferee  to  the 
goods  and  the  right  to  acquire  the  obligation  of  such  bailee  may  be  defeated 
by  the  levy  of  an  attachment  or  execution  upon  the  goods  by  a  creditor 
of  the  transferor,  or  by  a  notification  to  such  bailee  by  the  transferor  or 
a  subsequent  purchaser  from  the  transferor  of  a  subsequent  sale  of  the 
goods  by  the  transferor. 

Section  35.  (Transfer  of  Negotiable  Document  Without  Indorsement.) 
Where  a  negotiable  document  of  title  is  transferred  for  value  by  delivery, 
and  the  indorsement  of  the  transferor  is  essential  for  negotiation,  the  trans- 
feree acquires  a  right  against  the  transferor  to  compel  him  to  indorse  the 
document  unless  a  contrary  intention  appears.  The  negotiation  shall  take 
effect  as  of  the  time  when  the  indorsement  is  actually  made. 

Section  36.  (Warranties  on  Sale  of  Document.)  A  person  who  for 
value  negotiates  or  transfers  a  document  of  title  by  indorsement  or  delivery, 
including  one  who  assigns  for  value  a  claim  secured  by  a  document  of  title 
unless  a  contrary  intention  appears,  warrants: 

(a)  That  the  document  is  genuine. 

(b)  That  he  has  a  legal  right  to  negotiate  or  transfer  it. 

(c)  That  he  has  knowledge  of  no  fact  which  would  impair  the  validity 
or  worth  of  the  document,  and 


594  SALES 

(d)  That  he  has  a  right  to  transfer  the  title  to  the  goods,  and  that 
the  goods  are  merchantable  or  fit  for  a  particular  purpose,  whenever  such 
warranties  would  have  been  implied  if  the  contract  of  the  parties  had  been 
to  transfer  without  a  document  of  title  the  goods  represented  thereby. 

Section  37.  (Indorser  not  a  Guarantor.)  The  indorsement  of  a  docu- 
ment of  title  shall  not  make  the  indorser  liable  for  any  failure  on  the  part 
of  the  bailee  who  issued  the  document  or  previous  indorsers  thereof  to 
fulfill  their  respective  obligations. 

Section  38.  (When  Negotiation  not  Impaired  by  Fraud,  Mistake  or 
Duress.)  The  validity  of  the  negotiation  of  a  negotiable  document  of  title 
is  not  impaired  by  the  fact  that  the  negotiation  was  a  breach  of  duty  on 
the  part  of  the  person  making  the  negotiation,  or  by  the  fact  that  the  owner 
of  the  document  was  induced  by  fraud,  mistake  or  duress  to  entrust  the 
possession  or  custody  thereof  to  such  person,  if  the  person  to  whom  the 
document  was  negotiated  or  a  person  to  whom  the  document  was  subse- 
quently negotiated  paid  value  therefor,  without  notice  of  the  breach  of  duty, 
or  fraud,  mistake  or  duress. 

Section  39.  (Attachment  or  Levy  upon  Goods  for  which  a  Negotiable 
Document  Has  Been  Issued.)  If  goods  are  delivered  to  a  bailee  by  the 
owner  or  by  a  person  whose  act  in  conveying  the  title  to  them  to  a  pur- 
chaser in  good  faith  for  value  would  bind  the  owner  and  a  negotiable  docu- 
ment of  title  is  issued  for  them  they  cannot  thereafter,  while  in  the  pos- 
sions  of  such  bailee,  be  attached  by  garnishment  or  otherwise  or  be  levied 
upon  under  an  execution  unless  the  document  be  first  surrendered  to  the 
bailee  or  its  negotiation  enjoined.  The  bailee  shall  in  no  case  be  compelled 
to  deliver  up  the  actual  possession  of  the  goods  until  the  document  is  sur- 
rendered to  him  or  impounded  by  the  court. 

Section  40.  (Creditors'  Eemedies  to  Reach  Negotiable  Documents.) 
A  creditor  whose  debtor  is  the  owner  of  a  negotiable  document  of  title 
shall  be  entitled  to  such  aid  from  courts  of  appropriate  jurisdiction  by  in- 
junction and  otherwise  in  attaching  such  documents  or  in  satifying  the 
claim  by  means  thereof  as  is  allowed  at  law  or  in  equity  in  regard  to  prop- 
erty which  cannot  readily  be  attached  or  levied  upon  by  ordinary  process. 


part  m. 

Performance  of  the  Contract. 

Section  41.  (Seller  Must  Deliver  and  Buyer  Accept  Goods.)  It  is  the 
duty  of  the  seller  to  deliver  the  goods,  and  of  the  buyer  to  accept  and  pay 
for  them,  in  accordance  with  the  terms  of  the  contract  to  sell  or  sale. 

Section  42.  (Delivery  and  Payment  are  Concurrent  Conditions.)  Unless 
otherwise  agreed,  delivery  of  the  goods  and  payment  of  the  price  are  con- 
current condition;  that  is  to  say,  the  seller  must  be  ready  and  willing  to 
give  possession  of  the  goods  to  the  buyer  in  exchange  for  the  price  and 
the  buyer  must  be  ready  and  willing  to  pay  the  price  in  exchange  for  the 
possession  of  the  goods. 

Section  43.  (Place,  Time  and  Manner  of  Delivery.)  (1)  Whether  it 
is  for  the  buyer  to  take  possession  of  the  goods  or  for  the  seller  to  send 
them  to  the  buyer  is  a  question  depending  in  each  case  on  the  contract, 


APPENDIX  TO  DIVISION  C  595 

express  or  implied,  between  the  parties.  Apart  from  any  such  contract, 
express  or  implied,  or  usage  of  trade  to  the  contrary,  the  place  of  delivery 
is  the  seller's  place  of  business  if  he  have  one,  and  if  not,  his  residence, 
but  in  case  of  contract  to  sell  or  a  sale  of  specific  goods,  which  to  the  knowl- 
edge of  the  parties  when  the  contract  or  the  sale  was  made  were  in  some 
other  place,  then  that  place  is  the  place  of  delivery. 

(2)  Where  by  a  contract  to  sell  or  a  sale  the  seller  is  bound  to  send 
the  goods  to  the  buyer,  but  no  time  for  sending  them  is  fixed,  the  seller 
is  bound  to  send  them  within  a  reasonable  time. 

(3)  Where  the  goods  at  the  time  of  sale  are  in  the  possession  of  a 
third  person,  the  seller  has  not  fulfilled  his  obligation  to  deliver  to  the  buyer 
unless  and  until  such  third  person  acknowledges  to  the  buyer  that  he  holds 
the  goods  on  the  buyer's  behalf;  but  as  against  all  others  than  the  seller 
the  buyer  shall  be  regarded  as  having  received  delivery  from  the  time  when 
such  third  person  first  has  notice  of  the  sale.  Nothing  in  this  section,  how- 
ever, shall  affect  the  operation  of  the  issue  or  transfer  of  any  document 
of  title  to  goods. 

(4)  Demand  or  tender  of  delivery  may  be  treated  as  ineffectual  unless 
made  at  a  reasonable  hour.  What  is  a  reasonable  hour  is  a  question  of 
fact. 

(5)  Unless  otherwise  agreed,  the  expenses  of  and  incidental  to  put- 
ting the  goods  into  a  deliverable  state  must  be  borne  by  the  seller. 

Section  44.  (Delivery  of  Wrong  Quantity.)  (1)  Where  the  seller  de- 
livers to  the  buyer  a  quantity  of  goods  less  than  he  contracted  to  sell,  the 
buyer  may  reject  them,  but  if  the  buyer  accepts  or  retains  the  goods  so  de- 
livered, knowing  that  the  seller  is  not  going  to  perform  the  contract  in 
full,  he  must  pay  for  them  at  the  contract  rate.  If,  however,  the  buyer 
has  used  or  disposed  of  the  goods  delivered  before  he  knows  that  the  seller 
is  going  to  perform  his  contract  in  full,  the  buyer  shall  not  be  liable  for  more 
than  the  fair  value  to  him  of  the  goods  so  received. 

(2)  Where  the  seller  delivers  to  the  buyer  a  quantity  of  goods  larger 
than  he  contracted  to  sell,  the  buyer  may  accept  the  goods  included  in 
the  contract  and  reject  the  rest,  or  he  may  reject  the  whole.  If  the  buyer 
accepts  the  whole  of  the  goods  so  delivered  he  must  pay  for  them  at  the 
contract  rate. 

(3)  Where  the  seller  delivers  to  the  buyer  the  goods  he  contracted  to 
sell  mixed  with  goods  of  a  different  description  not  included  in  the  con- 
tract, the  buyer  may  accept  the  goods  which  are  in  accordance  with  the 
contract  and  reject  the  rest,  or  he  may  reject  the  whole. 

(4)  The  provisions  of  this  section  are  subject  to  any  usage  of  trade, 
special  agreement,  or  course  of  dealing  between  the  parties. 

Section  45.  (Delivery  in  Installments.)  (1)  Unless  otherwise  agreed, 
the  buyer  of  the  goods  is  not  bound  to  accept  delivery  thereof  by  install- 
ments. 

(2)  Where  there  is  a  contract  to  sell  goods  to  be  delivered  by  stated 
installments,  which  are  to  be  separately  paid  for,  and  the  seller  makes  de- 
fective deliveries  in  respect  of  one  or  more  installments,  or  the  buyer  neglects 
or  refuses  to  take  delivery  of  or  pay  for  one  or  more  installments,  it  depends 
in  each  case  on  the  terms  of  the  contract  and  the  circumstances  of  the  case 
whether  the  breach  of  contract  is  so  material  as  to  justify  the  injured 
party  in  refusing  to  proceed  further  and  suing  for  damages  for  breach 


596  SALES 

of  the  entire  contract,  or  whether  the  breach  is  severable,  giving  rise  to 
a  claim  for  compensation,  but  not  to  a  right  to  treat  the  whole  contract  as 
broken. 

Section  46.  (Delivery  to  a  Carrier  on  Behalf  of  the  Buyer.)  (1) 
Where,  in  pursuance  of  a  contract  to  sell  or  a  sale,  the  seller  is  authorized 
or  required  to  send  the  goods  to  the  buyer,  delivery  of  the  goods  to  a  car- 
rier, whether  named  by  the  buyer  or  not,  for  the  purpose  of  transmission 
to  the  buyer  is  deemed  to  be  a  delivery  of  the  goods  to  the  buyer,  except 
in  cases  provided  for  in  section  19,  rule  5,  or  unless  a  contrary  intent 
appears. 

(2)  Unless  otherwise  authorized  by  the  buyer,  the  seller  must  make 
such  contract  with  the  carrier  on  behalf  of  the  buyer  as  may  be  reasonable, 
having  regard  to  the  nature  of  the  goods  and  the  other  circumstances  of 
the  case.  If  the  seller  omit  so  to  do,  and  the  goods  are  lost  or  damaged 
in  course  of  transit,  the  buyer  may  decline  to  treat  the  delivery  to  the  carrier 
as  a  delivery  to  himself,  or  may  hold  the  seller  responsible  in  damages. 

(3)  Unless  otherwise  agreed,  where  goods  are  sent  by  the  seller  to 
the  buyer  under  circumstances  in  which  the  seller  knows  or  ought  to  know 
that  it  is  usual  to  insure,  the  seller  must  give  such  notice  to  the  buyer  as 
may  enable  him  to  insure  them  during  their  transit,  and,  if  the  seller  fails 
to  do  so,  the  goods  shall  be  deemed  to  be  at  his  risk  during  such  transit. 

Section  47.  (Eight  to  Examine  the  Goods.)  (1)  Where  goods  are  de- 
livered to  the  buyer,  which  he  has  not  previously  examined,  he  is  not  deemed 
to  accept  them  unless  and  until  he  has  had  a  reasonable  opportunity  of 
examining  them  for  the  purpose  of  ascertaining  whether  they  are  in  con- 
formity with  the  contract. 

(2)  Unless  otherwise  agreed,  when  the  seller  tenders  delivery  of  goods 
to  the  buyer,  he  is  bound,  on  request,  to  afford  the  buyer  a  reasonable  op- 
portunity of  examining  the  goods  for  the  purpose  of  ascertaining  whether 
they  are  in  conformity  with  ttie  contract. 

(3)  Where  goods  are  delivered  to  a  carrier  by  the  seller  in  accordance 
with  the  order  from  or  agreement  with  the  buyer,  upon  the  terms  that  the 
goods  shall  not  be  delivered  by  the  carrier  to  the  buyer  until  he  has  paid 
the  price,  whether  such  terms  are  indicated  by  marking  the  goods  with  the 
words  "collect  on  delivery,"  or  otherwise,  the  buyer  is  not  entitled  to 
examine  the  goods  before  payment  of  the  price  in  the  absence  of  agreement 
permitting  such  examination. 

Section  48.  (What  Constitutes  Acceptance.)  The  buyer  is  deemed  to 
have  accepted  the  goods  when  he  intimates  to  the  seller  that  he  has  accepted 
them,  or  when  the  goods  have  been  delivered  to  him,  and  he  does  any  act 
in  relation  to  them  which  is  inconsistent  with  the  ownership  of  the  seller, 
or  when,  after  the  lapse  of  a  reasonable  time,  he  retains  the  goods  intimating 
to  the  seller  that  he  has  rejected  them. 

Section  49.  (Acceptance  Does  not  Bar  Action  for  Damages.)  In  the 
absence  of  express  or  implied  agreement  of  the  parties,  acceptance  of  the 
goods  by  the  buyer  shall  not  discharge  the  seller  from  liability  in  damages 
or  other  legal  remedy  for  breach  of  any  promise  or  warranty  in  the  con- 
tract to  sell  or  the  sale.  But,  if,  after  acceptance  of  the  goods,  the  buyer 
fail  to  give  notice  to  the  seller  of  the  breach  of  any  promise  or  warranty 
within  a  reasonable  time  after  the  buyer  knows,  or  ought  to  know  of  such 
breach,  the  seller  shall  not  be  liable  therefor. 


APPENDIX  TO  DIVISION  C  597 

Section  50.  (Buyer  is  not  Bound  to  Return  Goods  Wrongly  Delivered.) 
Unless  otherwise  agreed,  when  goods  are  delivered  to  the  buyer,  and  he 
refuses  to  accept  them,  having  the  right  so  to  do,  he  is  not  bound  to  return 
them  to  the  seller,  but  it  is  sufficient  if  he  notifies  the  seller  that  he  refuses 
to  accept  them. 

Section  51.  (Buyer's  Liability  for  Failing  to  Accept  Delivery.)  When 
the  seller  is  ready  and  willing  to  deliver  the  goods,  and  requests  the  buyer 
to  take  delivery,  and  the  buyer  does  not  within  a  reasonable  time  after 
such  request  take  delivery  of  the  goods,  he  is  liable  to  the  seller  for  any 
loss  occasioned  by  his  neglect  or  refusal  to  take  delivery,  and  also  for  a 
reasonable  charge  for  the  care  and  custody  of  the  goods.  If  the  neglect  or 
refusal  of  the  buyer  to  take  delivery  amounts  to  a  repudiation  or  breach  of 
the  entire  contract,  the  seller  shall  have  the  rights  against  the  goods  and 
on  the  contract  hereinafter  provided  in  favor  of  the  seller  when  the  buyer  is 
in  default. 


PART  IV. 

Bights  op  Unpaid  Seller  Against  the  Goods. 

Section  52.  (Definition  of  Unpaid  Seller.)  (1)  The  seller  of  goods 
is  deemed  to  be  an  unpaid  seller  within  the  meaning  of  the  act — 

(a)  When  the  whole  of  the  price  has  not  been  paid  or  tendered. 

(b)  When  a  bill  of  exchange  or  other  negotiable  instrument  has  been 
received  as  conditional  payment,  and  the  condition  on  which  it  was  received 
has  been  broken  by  reason  of  the  dishonor  of  the  instrument,  the  insolvency 
of  the  buyer,  or  otherwise. 

(2)  In  this  part  of  this  act  the  term  "seller"  includes  an  agent  of 
the  seller  to  whom  the  bill  of  lading  has  been  indorsed,  or  a  consigner  or 
agent  who  has  himself  paid,  or  is  directly  responsible  for,  the  price,  or  any 
other  person  who  is  in  the  position  of  a  seller. 

Section  53.  (Remedies  of  an  Unpaid  Seller.)  (1)  Subject  to  the  pro- 
visions of  this  act,  notwithstanding  that  the  property  in  the  goods  may 
have. passed  to  the  buyer,  the  unpaid  seller  of  the  goods,  as  such,  has — 

(a)  A  lien  on  the  goods  or  right  to  retain  them  for  the  price  while 
he  is  in  possession  of  them; 

(b)  In  case  of  the  insolvency  of  the  buyer,  a  right  of  stopping  the 
goods  in  transitu  after  he  has  parted  with  the  possession  of  them; 

(c)  A  right  of  resale  as  limited  by  this  act; 

(d)  A  right  to  rescind  the  sale  as  limited  by  this  act. 

(2)  Where  the  property  in  goods  has  not  passed  to  the  buyer,  the  un- 
paid seller  has,  in  addition  to  his  other  remedies,  a  right  of  withholding 
delivery  similar  to  and  coextensive  with  his  rights  of  lien  and  stoppage 
"in  transitu"  where  the  property  has  passed  to  the  buyer. 

Section  54.  (When  Bight  of  Lien  May  be  Exercised.)  (1)  Subject 
to  the  provisions  of  this  act,  the  unpaid  seller  of  goods  who  is  in  posses- 
sion of  them  is  entitled  to  retain  possession  of  them  until  payment  or  tender 
of  the  price  in  the  following  cases,  namely: 

(a)  Where  the  goods  have  been  sold  without  any  stipulation  as  to 
credit: 


598  SALES 

(b)  Where  the  goods  have  been  sold  on  credit,  but  the  term  of  credit 
has  expired; 

(c)  Where  the  buyer  becomes  insolvent. 

(2)  The  seller  may  exercise  his  right  of  lien  notwithstanding  that  he 
is  in  possession  of  the  goods  as  agent  or  bailee  for  the  buyer. 

Section  55.  (Lien  after  Part  Delivery.)  Where  an  unpaid  seller  has 
made  part  delivery  of  the  goods,  he  may  exercise  his  right  of  lien  on  the 
remainder,  unless  such  part  delivery  has  been  made  under  such  circum- 
stances as  to  show  an  intent  to  waive  the  lien  or  right  of  retention. 

Section  56.  (When  Lien  is  Lost.)  (1)  The  unpaid  seller  of  goods 
loses  his  lien  thereon — 

(a)  When  he  delivers  the  goods  to  a  carrier  or  other  bailee  for  the 
purpose  of  transmission  to  the  buyer  without  reserving  the  property  in  the 
goods  or  the  right  to  the  possession  thereof; 

(b)  When  the  buyer  or  his  agent  lawfully  obtains  possession  of  the 
goods ; 

(c)  By  waiver  thereof. 

(2)  The  unpaid  seller  of  goods,  having  a  lien  thereon,  does  not  lose 
his  lien  by  reason  only  that  he  has  obtained  judgment  or  decree  for  the 
price  of  the  goods. 

Section  57.  (Seller  may  Stop  Goods  on  Buyer's  Insolvency.)  Subject 
to  the  provisions  of  this  act,  when  the  buyer  of  goods  is  or  becomes  in- 
solvent, the  unpaid  seller  who  has  parted  with  the  possession  of  the  goods 
has  the  right  of  stopping  them  in  transitu,  that  is  to  say,  he  may  resume 
possession  of  the  goods  at  any  time  while  they  are  in  transit,  and  he  will 
then  become  entitled  to  the  same  rights  in  regard  to  the  goods  as  he  would 
have  had  if  he  had  never  parted  with  the  possession. 

Section  58.  (When  Goods  are  in  Transit.)  (1)  Goods  are  in  transit 
within  the  meaning  of  section  57 — 

(a)  From  the  time  when  they  are  delivered  to  a  carrier  by  land  or 
water,  or  other  bailee  for  the  purpose  of  transmission  to  the  buyer,  until 
the  buyer,  or  his  agent  in  that  behalf,  takes  delivery  of  them  from  such 
carrier  or  other  bailee; 

(b)  If  the  goods  are  rejected  by  the  buyer,  and  the  carrier  or  other 
bailee  continues  in  possession  of  them,  even  if  the  seller  has  refused  to 
receive  them  back. 

(2)  Goods  are  no  longer  in  transit  within  the  meaning  of  section  57 — 

(a)  If  the  buyer,  or  his  agent  in  that  behalf,  obtains  delivery  of  the 
goods  before  their  arrival  at  the  appointed  destination; 

(b)  If,  after  the  arrival  of  the  goods  at  the  appointed  destination, 
the  carrier  or  other  bailee  acknowledges  to  the  buyer  or  his  agent  that  he 
holds  the  goods  on  his  behalf  and  continues  in  possession  of  them  as  bailee 
for  the  buyer  or  his  agent;  and  it  is  immaterial  that  a  further  destination 
for  the  goods  may  have  been  indicated  by  the  buyer; 

(c)  If  the  carrier  or  other  bailee  wrongfully  refuses  to  deliver  the 
goods  to  the  buyer  or  his  agent  in  that  behalf. 

(3)  If  the  goods  are  delivered  to  a  ship  chartered  by  the  buyer,  it  is 
a  question  depending  on  the  circumstances  of  the  particular  case,  whether 
they  are  in  the  possession  of  the  master  as  a  carrier  or  as  agent  of  the 
buyer. 

(4)  If  part  delivery  of  the  goods  has  been  made  to  the  buyer,  or  his 


APPENDIX  TO  DIVISION  C  599 

agent  in  that  behalf,  the  remainder  of  the  goods  may  be  stopped  in  transitu, 
unless  such  part  delivery  has  been  made  under  such  circumstances  as  to 
show  an  agreement  with  the  buyer  to  give  up  possession  of  the  whole  of  the 
goods. 

Section  59.  (Ways  of  Exercising  the  Eight  to  Stop.)  (1)  The  un- 
paid seller  may  exercise  his  right  of  stoppage  in  transitu  either  by  obtain- 
ing actual  possession  of  the  goods  or  by  giving  notice  of  his  claim  to  the 
carrier  or  other  bailee  in  whose  possession  the  goods  are.  Such  notice  may 
be  given  either  to  the  person  in  actual  possession  of  the  goods  or  to  his 
principal.  In  the  latter  case  the  notice  to  be  effectual,  must  be  given  at 
such  time  and  under  such  circumstances  that  the  principal,  by  the  exercise 
of  reasonable  diligence,  may  prevent  a  delivery  to  the  buyer. 

(2)  When  notice  of  stoppage  in  transitu  is  given  by  the  seller  to  the 
carrier,  or  other  bailee  in  possession  of  the  goods,  he  must  redeliver  the 
goods  to,  or  according  to  the  directions  of,  the  seller.  The  expenses  of  such 
redelivery  must  be  borne  by  the  seller.  If,  however,  a  negotiable  document 
of  title  representing  the  goods  has  been  issued  by  the  carrier  or  other  bailee, 
he  shall  not  be  obliged  to  deliver  or  be  justified  in  delivering  the  goods  to 
the  seller  unless  such  document  is  first  surrendered  for  cancellation. 

Section  60.  (When  and  How  Sesale  may  be  Made.)  (1)  Where  the 
goods  are  of  a  perishable  nature,  or  where  the  seller  expressly  reserves  the 
right  of  resale  in  case  the  buyer  should  make  default,  or  where  the  buyer 
has  been  in  default  in  the  payment  of  the  price  an  unreasonable  time,  an 
unpaid  seller  having  a  right  of  lien  or  having  stopped  the  goods  in  transitu 
may  resell  the  goods.  He  shall  not  thereafter  be  liable  to  the  original 
buyef  upon  the  contract  to  sell  or  the  sale  or  for  any  profit  made  by  such 
resale,  but  may  recover  from  the  buyer  damages  for  any  loss  occasioned 
by  the  breach  of  the  contract  or  the  sale. 

(2)  Where  a  resale  is  made,  as  authorized  in  this  section,  the  buyer 
acquires  a  good  title  as  against  the  original  buyer. 

(3)  It  is  not  essential  to  the  validity  of  a  resale  that  notice  of  an  inten- 
tion to  resell  the  goods  be  given  by  the  seller  to  the  original  buyer.  But 
where  the  right  to  resell  is  not  based  on  the  perishable  nature  of  the  goods 
or  upon  an  express  provision  of  the  contract  or  the  sale,  the  giving  or  fail- 
ure to  give  such  notice  shall  be  relevant  in  any  issue  involving  the  question 
whether  the  buyer  had  been  in  default  an  unreasonable  time  before  the 
resale  was  made. 

(4)  It  is  not  essential  to  the  validity  of  a  resale  that  notice  of  the  time 
and  place  of  such  resale  should  be  given  by  the  seller  to  the  original  buyer. 

(5)  The  seller  is  bound  to  exercise  reasonable  care  and  judgment  in 
making  a  resale,  and  subject  to  this  requirement  may  make  a  resale  either 
by  public  or  private  sale. 

Section  61.  (When  and  How  the  Seller  May  Rescind  the  Sale.)  (1) 
An  unpaid  seller  having  a  right  of  lien  or  having  stopped  the  goods  in 
transitu,  may  rescind  the  transfer  of  title  and  resume  the  property  in  the 
goods,  where  he  expressly  reserved  the  right  to  do  so  in  case  the  buyer 
should  make  default,  or  where  the  buyer  has  been  in  default  in  the  payment 
of  the  price  an  unreasonable  time.  The  seller  shall  not  thereafter  be  liable 
to  the  buyer  upon  the  contract  to  sell  or  the  sale,  but  may  recover  from 
the  buyer  damages  for  any  loss  occasioned  by  the  breach  of  the  contract  or 
the  sale. 


600  SALES 

(2)  The  transfer  of  title  shall  not  be  held  to  have  been  rescinded  by  an 
unpaid  seller  until  he  has  manifested  by  notice  to  the  buyer  or  by  some 
other  overt  act  an  intention  to  rescind.  It  is  not  necessary  that  such  overt 
act  should  be  communicated  to  the  buyer,  but  the  giving  or  failing  to  give 
notice  to  the  buyer  of  the  intention  to  rescind  shall  be  relevant  in  any 
issue  involving  the  question  whether  the  buyer  has  been  in  default  an  un- 
reasonable time  before  the  right  of  rescission  was  asserted. 

Section  62.  (Effect  of  Sale  of  Goods  Subject  to  Lien  or  Stoppage  in 
Transitu.)  Subject  to  the  provisions  of  this  act,  the  unpaid  seller's  right 
of  lien  or  stoppage  in  transitu  is  not  affected  by  any  sale,  or  other  disposi- 
tion of  the  goods  which  the  buyer  may  have  made,  unless  the  seller  has  as- 
sented thereto.  i 

If,  however,  a  negotiable  document  of  title  has  been  issued  for  goods, 
no  seller's  lien  or  right  of  stoppage  in  transitu  shall  defeat  the  right  of 
any  purchaser  for  value  in  good  faith  to  whom  such  document  has  been 
negotiated,  whether  such  negotiation  be  prior  or  subsequent  to  the  notifi- 
cation to  the  carrier  or  other  bailee  who  issued  such  document,  of  the  seller 's 
claim  to  a  lien  or  right  of  stoppage  in  transitu. 


PART  V. 

Actions  for  Breach  of  the  Contract. 

Section  63.  (Action  for  the  Price.)  (1)  Where,  under  a  contract  to 
sell  or  a  sale,  the  property  of  the  goods  has  passed  to  the  buyer,  and  the 
buyer  neglects  or  refuses  to  pay  for  the  goods  according  to  the  terms  of  the 
contract  or  the  sale,  the  seller  may  maintain  an  action  against  him  for  the 
price  of  the  goods. 

(2)  Where,  under  a  contract  to  sell  or  a  sale,  the  price  is  payable  on 
a  day  certain,  irrespective  of  delivery  or  of  transfer  of  title  and  the  buyer 
wrongfully  neglects  or  refuses  to  pay  such  price,  the  seller  may  maintain  an 
action  for  the  price,  although  the  property  in  the  goods  has  not  passed, 
and  the  goods  have  not  been  appropriated  to  the  contract.  But  it  shall 
be  a  defense  to  such  an  action  that  the  seller  at  any  time  before  judgment 
in  such  action  has  manifested  an  inability  to  perform  the  contract  or  the 
sale  on  his  part  or  an  intention  not  to  perform  it. 

(3)  Although  the  property  in  the  goods  has  not  passed,  if  they  cannot 
readily  be  resold  for  a  reasonable  price,  and  if  the  provisions  of  section  64 
(4)  are  not  applicable,  the  seller  may  offer  to  deliver  the  goods  to  the  buyer, 
and,  if  the  buyer  refuses  to  receive  them,  may  notify  the  buyer  that  the 
goods  are  thereafter  held  by  the  seller  as  bailee  for  the  buyer.  Thereafter 
the  seller  may  treat  the  goods  as  the  buyer 's  and  may  maintain  an  action  for 
the  price. 

Section  64.  (Action  for  Damages  for  Non-Acceptance  of  the  Goods.) 
(1)  Where  the  buyer  wrongfully  neglects  or  refuses  to  accept  and  pay 
for  the  goods,  the  seller  may  maintain  an  action  against  him  for  damages 
for  non-acceptance. 

(2)  The  measure  of  damages  is  the  estimated  loss  directly  and  nat- 
urally resulting,  in  the  ordinary  course  of  eventSj  from  the  buyer's  breach 
of  contract. 


APPENDIX  TO  DIVISION  C  601 

(3)  Where  there  is  an  available  market  for  the  goods  in  question,  the 
measure  of  damages  is,  in  the  absence  of  special  circumstances,  showing 
proximate  damage  of  a  greater  amount,  the  difference  between  the  contract 
price  and  the  market  or  current  price  at  the  time  or  times  when  the  goods 
ought  to  have  been  accepted,  or,  if  no  time  was  fixed  for  acceptance,  then 
at  the  time  of  the  refusal  to  accept. 

(4)  If,  while  labor  or  expense  of  material  amount  are  necessary  on 
the  part  of  the  seller  to  enable  him  to  fulfill  his  obligations  under  the  con- 
tract to  sell  or  the  sale,  the  buyer  repudiates  the  contract  or  the  sale,  or 
notifies  the  seller  to  proceed  no  further  therewith,  the  buyer  shall  be  liable 
to  the  seller  for  no  greater  damages  than  the  seller  would  have  suffered  if 
he  did  nothing  towards  carrying  out  the  contract  or  the  sale  after  receiving 
notice  of  the  buyer's  repudiation  or  countermand.  The  profit  the  seller 
would  have  made  if  the  contract  or  the  sale  had  been  fully  performed  shall 
be  considered  in  estimating  such  damages. 

Section  65.  (When  Seller  May  Rescind  Contract  or  Sale.)  Where  the 
goods  have  not  been  delivered  to  the  buyer,  and  the  buyer  has  repudiated 
the  contract  to  sell  or  sale,  or  has  manifested  his  inability  to  perform  his 
obligations  thereunder,  or  has  committed  a  material  breach  thereof,  the 
seller  may  totally  rescind  the  contract  or  the  sale  by  giving  notice  of  hi3 
election  so  to  do  to  the  buyer. 

Section  66.  (Action  for  Converting  or  Detaining  Goods.)  Where  the 
property  in  the  goods  has  passed  to  the  buyer  and  the  seller  wrongfully  neg- 
lects or  refuses  to  deliver  the  goods,  the  buyer  may  maintain  any  action 
allowed  by  law  to  the  owner  of  goods  of  similar  kind  when  wrongfully  con- 
verted or  withheld. 

Section  67.  (Action  for  Failing  to  Deliver  Goods.)  (1)  Where  the 
property  in  the  goods  has  not  passed  to  the  buyer,  and  the  seller  wrongfully 
neglects  or  refuses  to  deliver  the  goods,  the  buyer  may  maintain  an  action 
against  the  seller  for  damages  for  non-delivery. 

(2)  The  measure  of  damages  is  the  loss  directly  and  naturally  result- 
ing in  the  ordinary  course  of  events,  from  the  seller 's  breach  of  contract. 

(3)  Where  there  is  an  available  market  for  the  goods  in  question,  the 
measure  of  damages  in  the  absence  of  special  circumstances  showing  proxi- 
mate damages  of  a  greater  amount,  is  the  difference  between  the  contract 
price  and  the  market  or  current  price  of  the  goods  at  the  time  or  times 
when  they  ought  to  have  been  delivered,  or,  if  no  time  was  fixed,  then  at 
the  time  of  the  refusal  to  deliver. 

Section  68.  (Specific  Performance.)  Where  the  seller  has  broken  a  con- 
tract to  deliver  specific  or  ascertained  goods,  a  court  having  the  powers  of 
a  court  of  equity  may,  if  it  thinks  fit,  on  the  application  of  the  buyer,  by 
its  judgment  or  decree  direct  that  the  contract  shall  be  performed  spe- 
cifically, without  giving  the  seller  the  option  of  retaining  the  goods  on  pay- 
ment of  damages.  The  judgment  or  decree  may  be  unconditional,  or  upon 
such  terms  and  conditions  as  to  damages,  payment  of  the  price  and  other- 
wise, as  to  the  court  may  seem  just. 

Section  69.  (Remedies  for  Breach  of  Warranty.)  (1)  Where  there 
is  a  breach  of  warranty  by  the  seller,  the  buyer  may,  at  his  election — 

(a)  Accept  or  keep  the  goods  and  set  up  against  the  seller,  the  breach 
of  warranty  by  ways  of  recoupment  in  diminution  or  extinction  of  the 
price; 


602  SALES 

(b)  Accept  or  keep  the  goods  and  maintain  an  action  against  the  seller 
for  damages  for  the  breach  of  warranty; 

(c)  Kef  use  to  accept  the  goods,  if  the  property  therein  has  not  passed, 
and  maintain  an  action  against  the  seller  for  damages  for  the  breach  of 
warranty ; 

(d)  Kescind  the  contract  to  sell  or  the  sale  and  refuse  to  receive  the 
goods,  or  if  the  goods  have  already  been  received,  return  them  or  offer  to 
return  them  to  the  seller  and  recover  the  price  or  any  part  thereof  which 
has  been  paid. 

(2)  When  the  buyer  has  claimed  and  been  granted  a  remedy  in  any 
one  of  these  ways,  no  other  remedy  can  thereafter  be  granted. 

(3)  Where  the  goods  have  been  delivered  to  the  buyer,  he  cannot  rescind 
the  sale  if  he  knew  of  the  breach  of  warranty  when  he  accepted  the  goods, 
or  if  he  fails  to  notify  the  seller  within  a  reasonable  time  of  the  election 
to  rescind,  or  if  he  fails  to  return  or  to  offer  to  return  the  goods  to  the 
seller  in  substantially  as  good  condition  as  they  were  in  at  the  time  the 
property  was  transferred  to  the  buyer.  But  if  deterioration  or  injury  of 
the  goods  is  due  to  the  breach  of  warranty,  such  deterioration  or  injury 
shall  not  prevent  the  buyer  from  returning  and  offering  to  return  the  goods 
to  the  seller  and  rescinding  the  sale. 

(4)  Where  the  buyer  is  entitled  to  rescind  the  sale  and  elects  to  do 
so,  the  buyer  shall  cease  to  be  liable  for  the  price  upon  returning  or  offering 
to  return  the  goods.  If  the  price  or  any  part  thereof  has  already  been  paid, 
the  seller  shall  be  liable  to  repay  so  much  thereof  as  has  been  paid,  con- 
currently with  the  return  of  the  goods,  or  immediately  after  an  offer  to 
return  the  goods  in  exchange  for  repayment  of  the  price. 

(5)  Where  the  buyer  is  entitled  to  rescind  the  sale  and  elects  to  do  so. 
if  the  seller  refuses  to  accept  an  offer  of  the  buyer  to  return  the  goods,  the 
buyer  shall  thereafter  be  deemed  to  hold  the  goods  as  bailee  for  the  seller, 
but  subject  to  a  lien  to  secure  the  repayment  of  any  portion  of  the  price 
which  has  been  paid,  and  with  the  remedies  for  the  enforcement  of  such  lien 
allowed  to  an  unpaid  seller  by  section  53. 

(6)  The  measure  of  damages  for  breach  of  warranty  is  the  loss  directly 
and  naturally  resulting,  in  the  ordinary  course  of  events,  from  the  breach  of 
warranty. 

(7)  In  the  case  of  breach  of  warranty  of  quality,  such  loss,  in  the 
absence  of  special  circumstances  showing  proximate  damage  of  a  greater 
amount,  is  the  difference  between  the  value  of  the  goods  at  the  time  of  de- 
livery to  the  buyer  and  the  value  they  would  have  had  if  they  had  an- 
swered to  the  warranty. 

Section  70.  (Interest  and  Special  Damages.)  Nothing  in  this  act  shall 
affect  the  right  of  the  buyer  or  the  seller  to  recover  interest  or  special 
damages  in  any  case  where  by  law  interest  or  special  damages  may  be 
recoverable,  or  to  recover  money  paid  where  the  consideration  for  the  pay- 
ment of  it  has  failed. 


DIVISION  D 


NEGOTIABLE  PAPER 


DIVISION    D 

NEGOTIABLE  PAPER 

(Note :    The  outline  of  the  Negotiable  Instruments  Act 
is  in  a  general  way  followed.) 

Part     XIV.  Formation  of  Negotiable  Contract. 

Part       XV.  Negotiation,  Rights  and  Liabilities. 

Part     XVI.  Procedure  to  Fix  Liability. 

Part   XVII.  Discharge  of  Negotiable  Paper. 

Part  XVIII.  Bills  of  Exchange  Particularly  Considered. 

Part     XIX.  Promissory  Notes  and  Checks  Particularly 
Considered. 

PART    XIV 

FORMATION  OF  THE  NEGOTIABLE  CONTRACT 


Chapter  Fifty.  Formal  Requisites :  In  General. 

Chapter  Fifty-one.         Formal  Requisites :  The  Writing 

and  the  Signature. 

Chapter  Fifty-two.         Formal     Requisites:      Uncondi- 
tional Promise  or  Order. 

Chapter  Fifty-three.      Formal  Requisites :  Certainty  of 

Sum  and  Payment  in  Money. 

Chapter  Fifty-four.       Formal  Requisites :  Certainty  of 

Time  of  Payment. 

Chapter  Fifty-five.         Formal    Requisites:     Words    of 

Negotiability. 

Chapter  Fifty-six.  Provisions    and    Omissions    Not 

Affecting  Negotiability. 

Chapter  Fifty-seven.     Execution,  Delivery  and  Consid- 
eration. 
605 


CHAPTER    FIFTY 

FORMAL  REQUISITES:  (1)  IN  GENERAL 

Sec.  295.    The  Requisites  Stated. 

Case  No.  390.  Uniform  Negotiable  Instruments  Act, 
Sec.  1. 

"An  instrument  to  be  negotiable,  must  conform  to  the 
following  requirements : 

"1.  It  must  be  in  writing  and  signed  by  the  maker  or 
drawer ; 

"2.  Must  contain  an  unconditional  promise  or  order  to 
pay  a  sum  certain  in  money. 

"3.  Must  be  payable  on  demand  or  at  a  fixed  or  de- 
terminable future  time. 

"4.  Must  be  payable  to  order  or  to  bearer;  and 

"5.  Where  the  instrument  is  addressed  to  a  drawee, 
he  must  be  named  or  otherwise  indicated  therein  with 
reasonable  certainty.' * 

Question  390:  (1.)  State  the  essential  characteristics  of  ne- 
gotiable paper. 

(2.)     What  are  the  common  forms  of  negotiable  paper? 


606 


CHAPTER    FIFTY-ONE 

FORMAL  REQUISITES:  (2)  THE  WRITING  AND 
SIGNATURE 

Sec.  296.    Must  Be  in  Writing  and  Signed  by  the  Maker 

or  Drawer. 

Case  No.  391.     Geary  v.  Physic,  5B.&C.  234. 

Facts:  Suit  was  brought  by  an  indorsee  of  a  promis- 
sory note  against  the  maker.  The  indorsement  was  in 
pencil;  and  it  was  contended  that  this  was  not  a  good 
writing  within  the  law  of  negotiable  paper. 

Bailey,  J. :  "  •  *  *  I  think  that  a  writing  in  pencil 
is  a  writing  within  the  meaning  of  that  term  at  common 
law,  and  that  it  is  a  writing  within  the  custom  of  mer- 
chants. I  cannot  see  any  reason  why  when  the  law  re- 
quires a  contract  to  be  in  writing,  that  contract  shall  be 
void  if  it  be  written  in  pencil.     *     *     * ' ' 

Question  391:    State  the  above  case. 

(Note:  Obviously  the  provision  that  the  instrument  must  be 
signed  by  maker  or  drawer  does  not  preclude  the  execution  of  the 
instrument  by  an  agent.  See  Cases  198  and  199,  supra,  and 
Sec.  316,  post.  Also  the  signature  may  be  a  fictitious  or  as- 
sumed one.) 

Case  No.  392.  Jones  v.  Home  Furn.  Co.,  41  N.  Y. 
Supp.  71. 

Facts:    Stated  in  the  opinion. 

Point  Involved:  Whether  within  the  law  of  negotiable 
paper  an  instrument  may  be  validly  indorsed  (or  signed) 
by  the  use  of  a  fictitious  name. 

607 


608  NEGOTIABLE  PAPER 

Hatch,  J. :  "  Separate  actions  were  brought  upon  three 
promissory  notes.  The  notes,  which  were  made  payable 
to  the  order  of  'National  Publishing  Company,'  and  were 
signed  by  the  defendant  through  its  president,  were  each 
in  the  same  form,  excepting  the  dates  and  amounts.  The 
defendant  i*s  a  domestic  corporation,  having  its  place  of 
business  in  Brooklyn.  The  National  Publishing  Company 
is  a  name  assumed  by  plaintiff  in  carrying  on  his  busi- 
ness, and  represents  nothing  beyond  that  assumption.  It 
is  conceded  that  the  notes  were  each  given  for  a  valuable 
consideration  received  by  the  defendant  from  the  plain- 
tiff, but  the  claim  is  made  that  the  notes  were  made  pay- 
able to  a  company  that  had  no  existence,  and  that,  there- 
fore, the  paper  was  fictitious;  and  that  as  the  indorse- 
ment was  fictitious  and  spurious  no  title  passed  to  the 
notes.  This  defense  savors  of  delay  and  the  use  of  legal 
remedies  to  prevent  collection  of  a  bona  fide  debt.  The 
notes  were  as  much  payable  to  Jones  when  they  were 
made  payable  to  the  name  under  which  he  carried  on  his 
business  as  though  he  had  been  named  therein.  It  was  not 
in  legal  contemplation  a  fiction,  but  it  was  the  plaintiff 
under  this  business  name  and  represented  him.  When 
the  notes  were  made  and  delivered  to  plaintiff  under 
these  conditions  they  created  a  liability  against  the  de- 
fendant in  plaintiff's  favor." 

Question  392:  (1.)  Does  the  requirement  that  a  negotiable 
instrument  must  be  signed  by  the  maker  or  drawer  preclude  the 
use  of  a  fictitious  or  assumed  name? 

(2.)  If  John  Brown  signs  a  note,  for  some  reason  using,  to 
designate  himself,  the  name  of  Harry  Jones,  can  John  Brown 
be  sued  on  this  instrument? 

(3.)  A  works  for  a  certain  company  and  is  known  as  employee 
No.  12.  He  borrows  money  from  a  fellow  employee  and  gives  his 
note  beginning  "I  promise  to  pay"  and  signed  "12."  Can  the 
maker  of  this  note  be  held  thereon?  (Brown  v.  Bank,  6  Hill 
443.) 


CHAPTER    FIFTY-TWO 

FORMAL  REQUISITES:  (3)  UNCONDITIONAL 
PROMISE  OR  ORDER 

§  297.  In  general.  §  299.  Reference    to    fund,   account, 

§  298.  Statement  of  transaction  or  etc.,  as  qualifying  promise 

consideration  as  qualifying  or  order. 

promise  or  order. 

Sec.  297.    In  General. 

Case  No.  393.  Berenson  v.  L.  &  L.  Fire  Ins.  Co.,  201 
Mass.  172. 

Facts:  Berenson  sues  the  London  and  Lancashire 
Fire  Insurance  Co.  and  Givernaud,  upon  the  following 
paper  held  by  Berenson  as  indorsee  or  assignee  for  value : 

"Upon  acceptance  the  Connecticut  Trust  &  Safe  De- 
posit Co.  will  pay  to  the  order  of  Solomon  Yaffee  Three 
Hundred  Sixty  and  43/100  dollars,  which  acceptance  evi- 
denced by  proper  endorsement  hereof  constitutes  full 
satisfaction  of  all  claims  and  demands  for  loss  and  dam- 
age by  fire  on  December  25,  1906,  to  property  described 
in  policy  No.  6442019  issued  at  the  Lynn  agency  and  said 
policy  is  hereby  cancelled  and  surrendered  to  the  Com- 
pany. 

"To  the  London  &  Lancashire  Fire  Insurance  Co.  of 
Liverpool,  England.  Agency  Department,  Hartford, 
Conn.     (Sd.)  Joseph  F.  Givernaud,  Special  Agent." 

This  instrument  he  describes  in  his  pleadings  as  being 
either  a  negotiable  instrument  or  a  non-negotiable  chose 
in  action,  and  seeks  to  recover  on  either  theory.  He  sets 
out  that  Solomon  Yaffee  was  the  holder  of  a  fire  insur- 

609 


610  NEGOTIABLE  PAPER 

ance  policy  issued  by  defendant  company  upon  his  stock 
of  goods,  that  same  was  destroyed  by  fire,  and  that  the 
special  agent,  Givernaud,  issued  the  above  instrument  as 
an  adjustment,  directed  to  the  defendant  at  its  general 
agency  at  Hartford,  and  that  plaintiff  became  the  holder 
for  value  of  said  instrument,  by  purchase  from  Givernaud 
and  has  applied  to  defendant  company  for  payment  and 
that  said  company  refuses  to  pay.  He  therefore  seeks  to 
hold  the  insurance  company  as  the  assignee  of  a  chose  in 
action  made  by  it  through  its  agent  or  Givernaud  as  the 
drawer  of  a  bill  of  exchange. 

Rugg,  J. :  * i  If  the  words  '  upon  acceptance '  could  be 
eliminated,  it  would  plainly  be  a  foreign  bill  of  exchange 
drawn  by  Givernaud,  either  individually  or  as  agent,  for 
and  in  behalf  of  the  defendant  insurance  company  upon 
the  latter  at  its  Hartford  agency,  payable  at  the  Con- 
necticut Trust  and  Safe  Deposit  Company.  Carpenter  v. 
Farnsworth,  106  Mass.  561 ;  Chipman  v.  Foster,  119  Mass. 
189.  But  these  words  are  in  the  instrument,  and  must  be 
given  a  reasonably  intelligible  effect  if  possible.  All  the 
language  employed  may  be  examined  for  the  purpose  of 
ascertaining  the  meaning  attributed  by  the  parties  to 
those  in  dispute.  The  paper  was  made  with  the  intent 
that,  when  paid,  it  should  operate  as  a  settlement  of  claims 
for  damage  arising  from  a  fire  to  property  described  in 
a  policy  of  the  defendant  insurance  company  and  as  a 
cancellation  of  the  policy.  The  signature  is  by  one  who 
describes  himself  as  'special  agent.'  Reading  this  lan- 
guage in  conjunction  with  the  words  'upon  acceptance' 
seems  to  make  the  transaction  plain.  A  fire  had  injured 
property  insured  by  the  defendant  insurance  company. 
The  loss,  for  which  it  was  responsible  under  the  terms  of 
its  policy,  had  been  tentatively  adjusted  between  the  in- 
sured and  a  special  agent  of  the  insurance  company, 
whose  authority  to  make  payment  or  sign  an  instrument 
fixing  its  liability  was  limited  to  the  extent  of  requiring 
approval  or  ratification  by  the  Hartford  agency  of  the 
defendant  insurance  company.    Therefore,  the  agent  of 


UNCONDITIONAL  PROMISE  OR  ORDER  611 

limited  authority  drew  the  paper  in  suit  directed  to  the 
agency,  whose  approval  was  required  to  give  life  to  his 
adjustment,  stating  the  amount  of  loss  agreed  upon,  but 
making  the  vitality  of  the  instrument  dependent  upon  the 
act  of  approval  or  acceptance  by  that  agency.  Amplifica- 
tion of  the  words  'upon  acceptance*  expressive  of  the 
same  meaning  would  be  'upon  acceptance  of  this  con- 
tract by  the  agency  department  at  Hartford,  Connecti- 
cut, of  the  London  and  Lancashire  Fire  Insurance  Com- 
pany of  Liverpool,  England,  and  not  before.*  But  the 
significance  of  all  this  is  compressed  into  the  words  'upon 
acceptance'  in  view  of  the  other  language  of  the  instru- 
ment. It  is  in  effect  a  check  drawn  upon  the  account  of 
the  defendant  insurance  company  in  the  Connecticut 
Trust  and  Safe  Deposit  Company  which  is  not  to  be  valid 
until  countersigned  by  the  proper  officers  of  the  defend- 
ant company  at  its  Hartford  agency. 

"The  defendant  Givernaud  is  not  liable.  If  the  words 
'upon  acceptance*  had  been  omitted  he  would  then  have 
made  the  ordinary  contract  of  the  drawer,  namely,  abso- 
lutely to  pay  the  face  of  the  bill  if  not  accepted  by  the 
drawee  or  if  accepted  and  not  paid  by  him.  But  by  in- 
serting these  words  he  made  his  whole  liability  contingent 
upon  there  being  an  acceptance. 

"Although  no  case  exactly  like  this  is  to  be  found  in  our 
reports,  it  is  within  the  familiar  principle  that  contracts 
to  be  performed  only  upon  condition  are  not  negotiable 
instruments.  Grant  v.  Wood,  12  Gray,  220;  Costelo  v. 
Crowell,  127  Mass.  293,  and  cases  cited.  The  instrument, 
not  having  been  accepted  or  approved  by  the  Hartford 
agency  of  the  defendant  insurance  company,  never  be- 
came a  complete  and  operative  contract.  It  was  not  a 
negotiable  instrument,  as  above  pointed  out.  Nor  was  it 
a  chose  in  action  upon  which  recovery  could  be  had  with- 
out acceptance  by  the  defendant  insurance  company. 
Hence  there  was  nothing  to  assign.  Indeed  the  plaintiff 
does  not  seriously  argue  that  it  was  a  complete  chose  in 
action.* * 


612  NEGOTIABLE  PAPER 

Question  393:  (1.)  What  words  in  the  above  instrument 
made  it  non-negotiable?    Why? 

(2.)  If  the  instrument  had  been  a  negotiable  bill  of  exchange 
would  the  Insurance  Company  have  been  liable  without  accept- 
ance?   Why? 

(3.)  If  it  had  been  a  negotiable  bill  of  exchange  would  the 
drawer  have  been  made  liable  upon  non-acceptance?     Why? 

Case  No.  394.    White  v.  Cushing,  88  Maine,  339. 

Facts:  The  plaintiff,  White,  as  indorsee  of  an  order, 
sued  defendant,  Cushing,  as  the  maker  thereof,  and  it 
became  material  for  the  purpose  of  the  suit  to  inquire 
whether  the  order  was  a  negotiable  bill  of  exchange. 

The  order  reads  as  follows : 

"120.  Dover,  Oct.  27th,  1893. 

Piscataquis  Savings  Bank. 
Pay  James  Lawlor,  or  order,  One  Hundred  and  Twenty 

Dollars  and  charge  same  to  my  account  on  Book  No 

(Signed)  J.  N.  Cushing." 

"Witness: 


The  bank  book  of  the  depositor  must  accompany  this 
order. ' ' 

Point  Involved:  Whether  the  provisions  in  an  order 
to  the  effect  that  it  is  payable  on  condition  that  of  the  pro- 
duction of  a  bank  book,  is  negotiable. 

Foster,  J.:  "*  *  *  the  objection  that  is  raised  to 
the  negotiability  of  this  instrument  is  *  *  *  that  it 
is  subject  to  such  a  contingency  as  necessarily  embar- 
rasses its  circulation  and  imposes  a  restraint  upon  its 
negotiability  by  means  of  these  words  contained  upon  the 
face  of  the  order:  'The  bankbook  of  the  depositor  must 
accompany  this  order.'  Although  these  words  are  upon 
the  face  of  the  order  below  the  signature  of  the  drawer, 
they  were  there  at  the  time  of  its  inception,  became  a  sub- 
stantive part  thereof  and  qualified  its  terms  as  if  they 
had  been  inserted  in  the  body  of  the  instrument.  *  *  * 
Without  these  words,  the  order  is  payable  absolutely 


UNCONDITIONAL  PROMISE  OR  ORDER  613 

*  *  *.  With  tliem  the  order  is  payable  only  upon  a 
contingency  or  condition  and  that  is,  upon  the  production 
of  the  drawer's  bank  book.  *  *  *  It  cannot  therefore 
be  regarded  as  payable  absolutely  and  without  any  con- 
tingency that  would  embarrass  its  circulation.  The 
drawer  has  it  in  his  power  to  defeat  its  payment  by  with- 
holding the  bank  book.  *  *  *  It  was  the  necessity  of 
certainty  and  precision  in  mercantile  affairs  and  the  in- 
convenience that  would  result  if  commercial  paper  was 
encumbered  with  conditions  and  contingencies  that  led  to 
the  establishment  of  an  inflexible  rule  that  to  be  nego- 
tiable they  must  be  payable  absolutely  and  without  any 
condition  or  contingencies,  to  embarrass  their  circula- 
tion.    *     *     * 

Questimi  394:  (1.)  State  the  facts,  the  question  presented 
and  the  court's  decision  in  this  case,  giving  the  reasons  why  the 
above  instrument  was  held  non-negotiable. 

Sec.  298.    Statement  of  Transaction  or  Consideration  as 
Qualifying  Promise  or  Order. 

Case  No.  395.  Uniform  Negotiable  Instruments  Act, 
Sec.  3. 

''An  unqualified  order  or  promise  to  pay  is  uncondi- 
tional within  the  meaning  of  this  act,  though  coupled 
with :  *  *  *  2.  A  statement  of  the  transaction  which 
gives  rise  to  the  instrument." 

Question  395 :    State  this  provision  of  the  Neg.  Instr.  Act. 

Case  No.  396.    Hereth  et  al.  v.  Meyer,  33  Ind.  511. 

Facts:  Suit  by  indorsee  against  the  maker  of  a  note, 
containing  the  clause  "This  note  given  for  a  patent 
right."  Defense,  that  the  note  was  secured  by  the  orig- 
inal payee  through  fraud,  and  that  it  is  not  negotiable 
because  of  the  clause  mentioned,  and  that,  therefore,  the 
indorsee  is  subject  to  the  defenses  that  could  have  been 
made  against  the  payee. 


614  NEGOTIABLE  PAPER 

Point  Involved:  Whether  a  statement  in  a  note  of  the 
consideration  for  which  it  was  given,  affects  its  nego- 
tiability. 

Downey,  J.:  "•  *  *  This  Court  knows  judicially, 
from  its  own  records,  that  numerous  and  great  frauds  are 
practiced  upon  the  unwary  in  the  sale  of  patent  rights, 
and  it  is  probable  this  is  another  to  be  added  to  the  num- 
ber. But  when  a  party  purchasing  such  a  right  has  ex- 
ecuted his  note,  governed,  as  this  one  is,  by  the  same  law 
which  governs  inland  bills  of  exchange,  and  when  that 
note  has  passed,  by  indorsement  into  the  hands  of  a  bona 
fide  holder  for  value,  new  and  important  rights  arise, 
which  the  law  must  protect.     *     *     * 

''Mercantile  paper,  by  legal  inference,  imports  a  con- 
sideration. But  if  this  implication  is  strengthened  by  a 
statement  on  the  face  of  the  paper  that  there  was  a  con- 
sideration and  in  what  the  consideration  consisted,  can 
it  be  said  that  this  shall  impair  or  degrade  the  character 
of  the  security? 

"If  it  be  stated  in  the  note  that  it  is  given  for  a  tract  of 
land,  a  span  of  horses,  or  a  'patent  right,'  can  it  be  said 
that  such  statement  takes  away  from  the  instrument  its 
negotiable  character  according  to  the  law  merchant  and 
opens  up  to  the  maker  every  defense  which  he  might  have 
had  if  the  note  had  remained  in  the  hands  of  the  payee  ? 
We  are  satisfied  that  such  is  not  the  law. ' ' 

Question  396:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision. 

(2.)  Why  does  the  statement  of  the  consideration  not  affect 
negotiability  ? 

(Note:  By  local  statute  a  note  stating  on  its  face  that  it  is 
given  for  a  particular  kind  of  consideration  may  be  non-nego- 
tiable for  reasons  of  public  policy.  Thus  it  is  provided  in  the 
New  York,  Ohio,  and  Indiana  law  (enacted  in  Indiana  after  the 
above  case  was  decided)  that  notes  given  for  patent  rights  shall 
so  state  that  fact  upon  their  face  and  shall  thereupon  pass  to 
purchasers  subject  to  all  defenses  that  would  be  good  against 


UNCONDITIONAL  PROMISE  OR  ORDER  615 

the  original  holder ;  if  such  statement  is  omitted  the  note  is  unen- 
forceable between  the  parties,  but  is  good  in  the  hands  of  a  holder 
in  due  course ;  New  v.  Walker,  108  Ind.  365.  So  in  some  states, 
a  note  secured  by  chattel  mortgage  is  subject  to  the  same  qualifi- 
cations. ) 

Case  No.  397.    Siegel  v.  Bank,  131  111.  569. 

Facts:  Siegel,  Cooper  &  Co.,  merchants  of  Chicago, 
contracted  with  D.  Dalziel,  for  street  car  advertising  to 
be  placed  by  him,  and  gave  in  consideration  for  his  un- 
dertakings the  following  note: 

' ■  $300.  Chicago,  March  5, 1857. 

On  July  1, 1887,  we  promise  to  pay  D.  Dalziel,  or  order, 
the  sum  of  three  hundred  dollars,  for  the  privilege  of 
one  framed  advertising  sign,  size  —  x  —  inches,  one  end 
of  each  of  one  hundred  and  fifty-nine  street  cars  of  the 
North  Chicago  City  Railway  Co.,  for  a  term  of  three 
months,  from  May  15, 1887. 

Siegel,  Cooper  &  Co." 

and  the  maker  defended  that  the  instrument  was  not  ne- 
gotiable because  of  the  statement  of  the  transaction  on 
the  face  of  the  instrument  and  that  therefore  the  bank 
ought  to  be  liable  to. the  defense  of  non-performance  to 
which  Dalziel  would  have  been  subject,  were  he  still  the 
holder. 

Point  Involved :  Whether  a  statement  of  the  considera- 
tion for  which  a  note  is  given  makes  it  non-negotiable, 
and  therefore  subjects  the  holder  to  the  defenses  good 
against  his  transferror. 

Me.  Chief  Justice  Shope  delivered  the  opinion  of  the 
Court: 

"The  first  question  presented  is,  is  this  instrument  ne- 
gotiable?— and  this  question  has  been  answered  affirma- 
tively by  the  circuit  and  appellate  courts.  The  appellate 
court  having  affirmed  the  judgment  in  favor  of  the  plain- 
tiff, the  case  is  brought  here  by  appeal,  upon  a  certificate 
of  importance  granted  by  that  Court. 


616  NEGOTIABLE  PAPEB 

"It  appears,  that  before  the  time  when  the  privilege 
of  advertising  was  to  commence,  Dalziel  forfeited  any 
right  he  may  have  acquired  to  use  the  cars  in  the  manner 
indicated,  and  the  privilege  specified  never  was  furnished 
appellants;  and  it  is  insisted  that  the  instrument  is  a 
simple  contract,  only,  and  that  therefore  the  same  defense 
— failure  of  consideration — is  available  against  the  in- 
dorsee of  the  paper  for  value,  and  before  due,  as  might 
be  interposed  against  such  paper  in  the  hands  of  the 
payee.  It  is  also  insisted,  that  the  instrument  shows,  on 
its  face,  that  payment  depended  upon  a  condition  prece- 
dent to  be  performed  by  the  payee,  and  therefore  the  in- 
dorsee took  it  with  notice,  and  by  the  failure  of  the  payee 
to  perform  the  condition,  no  right  of  recovery  exists  in 
the  indorsee.  It  is  not  contended  that  the  indorsee  had 
any  other  notice  than  that  contained  in  the  instrument 
itself,  and  it  is  apparent  that  at  the  time  of  its  indorse- 
ment, which  was  the  day  of  its  execution,  no  right  to  the 
consideration  had  accrued  to  the  makers.  It  is  a  promise 
to  pay  a  certain  sum  of  money  at  a  day  certain,  for  a  con- 
sideration thereafter  to  be  rendered,  and  depends  for  its 
validity  upon  the  implied  promise  of  the  payee  to  furnish 
the  consideration  at  the  time  and  in  the  manner  stipu- 
lated,—  that  is,  it  is  a  promise  to  pay  a  sum  certain  on  a 
particular  day,  in  consideration  of  the  promise  of  the 
payee  to  do  and  perform  on  his  part.  A  promise  is  a  valu- 
able consideration  for  a  promise. 

"But  the  question  remains,  whether  the  statement  or 
the  recital  of  the  consideration  on  the  face  of  the  instru- 
ment impairs  its  negotiability,  and  in  this  instance, 
amounts  to  a  condition  precedent.  The  mere  fact  that  the 
consideration  for  which  a  note  is  given  is  recited  in  it, 
although  it  may  appear  thereby  that  it  was  given  for  or  in 
consideration  of  an  executory  contract  or  promise  on  the 
part  of  the  payee,  will  not  destroy  its  negotiability,  un- 
less it  appears,  through  the  recital,  that  it  qualifies  the 
promise  to  pay,  and  renders  it  conditional  or  uncertain, 
either  as  to  the  time  of  payment  or  the  sum  to  be  paid. 


UNCONDITIONAL  PROMISE  OR  ORDER  617 

"*  Nor  is  there  anything  in  the  recital  of  the 

consideration  to  put  the  indorsee  upon  inquiry  at  the  time 
the  indorsement  was  made.  Indeed,  it  is  clear  that  at 
that  time  no  inquiry  would  have  led  to  notice  that  Dalziel 
would  fail  to  comply  with  his  contract  on  the  15th  of  May 
thereafter,  when  the  term  was  to  commence.  All  that  the 
recitals  would  give  notice  of  was,  that  the  note  was  given 
in  consideration  of  an  agreement  on  the  part  of  the  payee 
that  the  privilege  of  advertisement  named  should  be  en- 
joyed by  the  makers  for  three  months,  from  May  15, 1887. 
Giving  to  the  language  employed  its  broadest  possible 
meaning,  it  cannot  be  construed  as  notice  to  the  indorsee 
of  the  future  breach  of  the  contract  by  Dalziel.  The  pre- 
sumption of  law  would  be,  that  the  contract  would  be 
carried  out  in  good  faith,  and  the  consideration  performed 
as  stipulated.  The  makers  had  put  their  promissory  note 
into  the  hands  of  Dalziel  upon  an  expressed  consideration 
which  they  were  thereafter  to  receive,  and  for  the  per- 
formance of  which  they  had  seen  fit  to  rely  upon  the 
undertaking  of  Dalziel,  and  we  are  aware  of  no  rule  by 
which  they  can  hold  this  indorsee  for  value,  before  due 
and  before  the  time  of  performance  was  to  begin,  charge- 
able with  notice  that  the  promise  upon  which  the  makers 
relied  would  not  be  kept  and  performed.  Wade  on  Notice, 
sec.  94a;  Loomis  v.  Maury,  15  N.  Y.  312;  Davis  v.  Mc- 
Cready,  supra." 

Question  397 :  What  was  the  defense  raised  in  this  case  ?  Did 
it  prevail  ?    Why  ? 

Case  No.  398.     Mott  v.  Havana  Nat.  Bank,  22  Hun 
(N.  Y.)  354. 
Facts :    Suit  upon  the  following  note : 

1 ■  $450.00.  New  York,  October  15, 1875. 

Fourteen  and  one-half  months  after  date,  I  promise  to 
pay  to  the  order  of  the  American  Engine  Company,  $450 
at  seven  per  centum,  at  the  Havana  National  Bank  at 
Havana,  N.  Y.,  value  received,  being  in  part  payment  for 
a  portable  engine,  which  engine  shall  be  and  remain  the 


618  NEGOTIABLE  PAPER 

property  of  the  owner  of  this  note,  until  the  amount  se- 
cured hereby  is  fully  paid. 
No due  Jan.  4, 1877.  Fred  L.  Nighthart." 

This  note  was  endorsed  before  maturity  to  the  plaintiff 
Mott,  and  bore  also  the  endorsement  of  Gilbert  Wood- 
ward as  accommodation  endorser  for  Nighthart.  The 
note  was  sent  the  defendant  bank  for  collection  and  the 
bank  is  now  sued  for  failure  to  notify  the  indorser.  De- 
fense that  the  note  described  is  nofc  negotiable  and  that 
therefore  the  indorser  was  not  entitled  to  notice  of  non- 
payment within  the  rules  governing  negotiable  paper. 

Point  Involved:  Whether  the  statement  in  the  note  of 
the  fact  that  it  was  given  for  the  purchase  of  a  particu- 
lar article  of  property,  and  that  the  title  thereto  was 
retained  in  the  seller  until  full  payment  of  the  indebted- 
ness, destroyed  its  negotiability. 

j 
Talcott,  P.  J.,  delivered  the  opinion  of  the  Court: 
<  i  #     *     #     rp^  no^e  'm  ^g  cage  wag  an  agreement  to  pay 

the  money  specified  in  it  to  a  certain  payee,  on  a  day  cer- 
tain, and  contained  all  the  requisites  of  a  negotiable  prom- 
issory note ;  and  the  addition  of  the  statement  of  the  con- 
sideration, to-wit,  the  engine,  with  the  statement  that  it 
was  to  remain  the  property  of  the  owner  until  the  note 
was  paid,  did  not  render  it  non-negotiable. ' ' 

Question  398 :  State  the  facts,  the  question  presented  and  the 
Court 's  decision  in  the  above  ease. 

(Note :  Chicago  Rwy.  Equipment  Co.  v.  Merchants  Nat.  Bank, 
136  U.  S.  268 ;  Choate  v.  Stevens,  116  Mich.  28 ;  W.  W.  Kimball 
Co.  v.  Mellen,  80  Wis.  133;  accord.  Third  National  Bank  v. 
Armstrong,  25  Minn.  530 ;  Killam  v.  Schoeps,  26  Kan.  310,  contra 
[unless  the  further  provision  that  the  seller  may  retake  possession 
makes  a  distinction].) 

Case  No.  399.  Klots  Throwing  Co.  v.  M'f'rs  Com'l 
Co.,  179  Fed.  813. 

Facts:  Note  set  out  below  was  made  by  defendant 
Klots  Throwing  Machine  Co.,  to  the  payee  therein  named 


UNCONDITIONAL  PROMISE  OR  ORDER  619 

and  by  such  payee  endorsed  and  delivered  for  value  be- 
fore maturity  to  the  Manufacturers  Commercial  Com- 
pany. The  maker  refused  to  pay  the  note  on  the  ground 
that  the  payee  had  not  performed  the  contract  for  which 
the  note  was  given,  and  claims  that  the  present  holder  is 
subject  to  such  defense,  though  purchasing  without  notice 
thereof,  on  account  of  the  claim  that  the  note  is  non-nego- 
tiable.   The  note  read  as  follows : 

' '  $3,166.00.  New  York,  January  15th,  1906. 

Six  months  after  date  we  promise  to  pay  to  the  order 
of  the  Regenerated  Cold  Air  Company,  Thirty  One  Hun- 
dred and  Sixty  Six  0/100  dollars  at  487  Broadway,  New 
York  City,  with  interest  at  six  per  cent,  per  annum. 

Value  received,  subject  to  a  contract  between  maker 
and  payee  of  October  25,  1905. 

No Due  July  15th,  '06. 

Klots  Throwing  Company, 

H.  D.  Klots,  President.' ' 

Point  Involved:  Whether  a  note  otherwise  negotiable 
in  form  is  rendered  non-negotiable  by  the  statement 
therein  that  it  is  "subject  to  a  contract  between  the  par- 
ties." 

Noyes,  Circuit  Judge,  delivered  the  opinion  of  the 
Court :  *  *  *  *  *  In  our  opinion  when  a  note  contains 
special  stipulations,  and  its  payment  is  subject  to  contin- 
gencies, it  fails  to  possess  the  character  of  a  negotiable 
instrument,  and  is  subject  in  the  hands  of  an  assignee  to 
any  defense  which  would  be  available  if  it  were  still  held 
by  the  original  payee.  *  *  *  let  us  suppose  that  the 
note  in  question  contained  the  following  stipulation: 
1  This  note  in  the  hands  of  all  holders  is  subject  to  all  de- 
fenses which  would  be  available  to  the  maker  based  upon 
the  contract  between  the  maker  and  the  payee  of  October, 
1905,  in  the  same  manner  and  to  the  same  extent  as  if  it 
were  held  by  the  payee.     *     *     *' 

"The  real  inquiry  in  the  present  case  is  whether  the 
promise  in  the  note  should  be  treated  as  a  substantial 


620  NEGOTIABLE  PAPER 

equivalent  of  the  suppositious  promise  we  have  examined. 
Manifestly,  if  the  provision  *  *  *  merely  constitutes 
notice  of  the  existence  of  the  contract,  and  not  of  the 
breach  thereof,  it  would  not  affect  negotiability.  But 
the  evident  purpose  of  the  parties  was  to  go  further, 
and  make  it  subject  to  and  to  impress  upon  it  the  de- 
fenses to  which  the  maker  would  be  entitled  under  the 
contract.  The  assignee  took  it  in  that  condition.  To  de- 
prive the  maker  of  those  defenses,  upon  the  ground  of 
the  negotiability  of  the  note,  would  work  great  injustice, 
and  we  think  we  are  not  required  to  reach  such  a  result. 
As  between  the  maker  and  payee  of  a  note,  payment  is  as 
a  matter  of  law,  subject  to  existing  equities  and  defenses, 
even  in  the  absence  of  any  statement  to  that  effect  in  the 
note.  It  is  not  too  much  to  hold  that  when  a  promise  is 
expressly  limited  by  a  provision  in  the  note  itself,  as- 
signees should  take  it  subject  to  such  limitation.     *     *     * 

"In  American  Exchange  Bank  v.  Blanchard,  7  Allen, 
333,  an  instrument  containing  a  promise  to  pay  a  stipu- 
lated sum  at  a  fixed  time,  'subject  to  the  policy'  was 
held  in  a  suit  by  the  indorsee,  not  to  be  a  negotiable 
promissory  note  because  the  promise  was  not  absolute. 
The  Court  said:  '*  *  *  To  determine  whether  at  its 
maturity  any  money  would  become  due  upon  it,  it  would 
be  necessary  to  have  recourse  to  the  policy  therein  re- 
ferred to,  and  to  ascertain  whether  any  loss  had  occurred 
which  would  constitute  a  valid  claim  against  the  com- 
pany.    *     *     *' 

a*  *  *  yye  reach  jfae  conclusion  that  the  note  in 
question  was  not  negotiable.     *     *     *" 

Question  399:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  What  was  the  case  of  American  Exchange  Bank  v. 
Blanchard  ? 

Sec.  299.    Reference  to  Fund,  Account,  etc.,  as  Qualifying 
Promise  or  Order. 

Case  No.  400.  Uniform  Negotiable  Instruments  Act, 
Sec.  3. 


UNCONDITIONAL  PROiMlSE  OR  ORDER  621 

"An  unqualified  order  or  promise  to  pay  is  uncondi- 
tional within  the  meaning  of  this  act,  though  coupled 
with: 

"1.  An  indication  of  a  particular  fund  out  of  which 
reimbursement  is  to  be  made,  or  a  particular  account  to 
be  debited  with  the  amount ;     *     *     * 

*     *     But  an  order  or  promise  to  pay  out  of  a 
particular  fund  is  not  unconditional.' ■ 

Question  400:    State  the  above  rule. 

Case  No.  401.  First  National  Bank  v.  Lightner,  74 
Kan.  736. 

Facts:  Suit  against  First  National  Bank  of  Hutchin- 
son, Kansas,  against  George  W.  Lightner,  on  his  accept- 
ance of  two  orders  mainly  identical,  of  which  one  read  as 
follows : 

"Hutchinson,  Kansas,  Aug.  10, 1903. 
G.  W.  Lightner,  Offerle,  Kansas. 
Dear  Sir: 
Pay  to  the  order  of  the  First  National  Bank  of  Hutchin- 
son, Kansas,  $1500  on  account  of  contract  between  you 
and  the  Snyder  Planing  Mill  Company. 

The  Snyder  Planing  Mill  Co., 
Per  J.  F.  Donnell,  Treasurer. 

Accepted:  G.  W.  Lightner." 

The  question  presented  was  whether  this  order  was 
negotiable. 

Point  Involved:  Whether  an  instrument  otherwise 
negotiable  is  rendered  non-negotiable  by  the  statement 
that  it  is  to  be  paid  on  account  of  a  particular  contract 
stated  to  exist  between  drawer  and  drawee. 

Porteb,  J. :  "  •  *  *  The  main  controversy  is  whether 
the  orders  given  by  the  planing  mill  company  to  the  bank 
and  accepted  by  defendant  are  negotiable  instruments. 
It  is  true  that  no  specific  time  of  payment  is  mentioned 
but  that  does  not  affect  their  validity  as  such  instruments ; 
and  where  no  date  is  mentioned  they  are  payable  on  de- 


622  NEGOTIABLE  PAPER 

mand.  *  *  *  Each  of  them,  therefore,  possesses  all 
the  essential  elements  of  a  bill  of  exchange,  unless  the 
words '  on  account  of  contract  between  you  and  the  Snyder 
Planing  Mill  Company '  make  them  payable  out  of  a  par- 
ticular fund,  and  conditionally,  so  that  the  acceptance  is 
thereby  qualified. 

"The  law  is  well  settled  that  a  bill  or  note  is  not  nego- 
tiable if  settled  out  of  a  particular  fund.  *  *  *  But  a 
distinction  is  recognized  where  the  instrument  is  simply 
chargeable  to  a  particular  account.  In  such  a  case  it  is 
beyond  question  negotiable ;  payment  is  not  made  to  de- 
pend on  the  sufficiency  of  the  fund  mentioned,  and  it  is 
mentioned  only  for  the  purpose  of  informing  the  drawee 
as  to  his  means  of  re-imbursement.     *     *     * 

"The  test  in  every  case  is  said  to  be  'Does  the  instru- 
ment carry  the  general  personal  credit  of  the  drawer  or 
maker,  or  only  the  credit  of  a  particular  fund  v     *     *     * 

"We  are  of  opinion  that  these  orders  cannot  be  con- 
strued as  drawn  upon  a  particular  fund.  *  *  *  In  our 
views  they  were  negotiable.     *     *     • " 

Question  401:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

Case  No.  402.    Meany  v.  Pool  &  McCord,  136  N.  Y.  610. 
Facts:    See  the  opinion. 

Clark,  J. :  "  *  *  *  The  paper  set  out  in  the  com- 
plaint is  not  a  negotiable  instrument.  *  *  *  This  in- 
strument provides  as  follows :  '  This  amount  to  be  paid 
out  of  our  profits  on  the  3  East  40th  Street  job. '  Being, 
therefore,  a  promise  to  pay  out  of  a  particular  fund  it  is 
not  unconditional.     *     *     *" 

Question  402:    State  this  case. 

Case  No.  403.  National  Savings  Bank  v.  Cable,  73  Con- 
necticut Reports,  568. 


UNCONDITIONAL  PROMISE  OR  ORDER  623 

Torrance,  J. :    '  *  *     *     *    The  counterclaim  also  failed 

to  show  any  consideration  for  the  order  or  its  acceptance. 

If  the  order  had  been  negotiable,  it  might  have  been  held 

to  import  a  consideration,  but  it  is  not  negotiable.    It  is 

payable  out  of  a  particular  fund;  it  is  to  pay  $300,  or 

what  would  be  due  on  a  specified  book ;  the  amount  to  be 

paid  is  made  to  depend  upon  the  adequacy  of  a  specified 

fund ;  such  an  order  is  conditional,  and  so  not  negotiable. 
*     *     *»> 

Question  403:    State  the  above  case. 

Case  No.  404.    Worden  v.  Dodge,  4  Denio,  159. 

Beardsley,  J. :  ' '  *  *  *  A  promissory  note  must  be 
payable  absolutely  and  not  upon  any  contingency  as  to 
time  and  event.     *     *     * 

"This  was  not  such  an  engagement,  for  although  the 
promise  was  to  make  engagements  at  certain  specified 
times,  the  payments  were  to  be  made  '  out  of  the  net  pro- 
ceeds '  'of  ore  to  be  raised  and  sold'  from  a  certain  ore 
bed.  Here  was  a  contingency ;  the  fund  might  turn  out  to 
be  inadequate,  in  which  case  there  would  be  no  obligation 
to  pay  at  any  time.  It  was  not  a  promise  to  pay  'abso- 
lutely and  at  all  events'  as  a  (negotiable)  promissory  note 
always  is." 

Question  404 :    State  the  above  case. 


CHAPTER    FIFTY-THREE 

FORMAL  REQUISITES:   (4)   CERTAINTY  OF  SUM 
AND  PAYMENT  IN  MONEY 

§  300.  Certainty  of  sum.  §  301.  Payment  in  money. 

Sec.  300.    Certainty  of  Sum. 

Case  No.  405.     Smith  v.  Nightingale,  2  Starkie,  375. 
Facts:    Suit  was  brought  upon  the  following  instru- 
ment describing  it  as  a  negotiable  promissory  note. 

"October  12, 1807. 
"I  promise  to  pay  James  Eastling,  my  head  carter,  the 
sum  of  641.  with  lawful  interest  for  the  same,  three 
months  after  date,  and  also  all  other  sums  which  may 
be  due  to  him." 

(Signed  by  defendant.) 

It  was  objected  that  this  note  was  not  negotiable. 

Lord  Ellenborough  was  of  the  opinion  that  the  instru- 
ment was  too  indefinite  to  be  considered  as  a  promissory 
note ;  * '  it  contained  a  promise  to  pay  interest  for  a  sum 
not  specified,  and  not  otherwise  ascertained  than  by  a 
reference  to  defendants  books;  and  since  the  whole  con- 
stituted one  entire  promise,  it  could  not  be  divided  into 
parts. ' ' 

Question  405:  State  the  matter  in  the  above  instrument  which 
rendered  it  non-negotiable. 

Case  No.  406.  Thorpe  v.  Mindeman,  123  Wis.  149;  68 
L.  E.  A.  147. 

624 


CERTAINTY  OF  SUM  625 

Facts:  Suit  to  foreclose  a  note  and  mortgage.  The 
note  contained  the  following  provision:  "The  payment 
of  this  note  is  secured  by  a  mortgage  of  even  date  here- 
with on  real  estate.  If  default  shall  be  made  in  the  pay- 
ment of  interest,  or  in  case  of  failure  to  comply  with  any 
of  the  conditions  or  agreements  of  the  mortgage  col- 
lateral hereto,  then  the  whole  amount  of  the  principal 
shall,  at  the  option  of  the  mortgagee  or  his  representa- 
tives or  assigns  (notice  of  such  option  being  hereby 
expressly  waived)  become  due  and  payable  without  any 
notice  whatever."  The  mortgage  referred  to  contained 
the  usual  provisions  that  the  mortgagor  (the  maker  of 
the  note)  should  pay  all  taxes,  and  should  keep  the 
property  insured,  or  in  default  thereof  the  mortgagee 
might  pay  such  insurance  and  add  the  same  to  the  amount 
of  the  note,  etc.  This  note  was  transferred  to  the  pres- 
ent holder  by  an  indorsement  on  the  back  of  the  note,  as 
follows : 

' '  For  value  received,  I  hereby  sell,  transfer  and  assign 
the  within  note,  and  the  interest  coupons  thereto  attached 
to  Josephine  Thorpe,  without  recourse. ' ' 

Defense:  That  the  note  was  without  consideration, 
and  that  it  is  non-negotiable  and  that  the  plaintiff,  there- 
fore took  it,  subject  to  that  defense. 

Point  Involved:  Whether  a  provision  in  a  note  that  it 
is  secured  by  a  real  estate  mortgage  which  contains  pro- 
visions rendering  amount  of  sum  payable  uncertain, 
makes  the  note  payable  for  a  sum  uncertain,  on  the 
ground  that  both  instruments  are  one  transaction  and 
mast  be  construed  together. 

Winslow,  J.:  "•  *  *  The  general  rule  that  agree- 
ments contemporaneously  executed  and  pertaining  to 
the  same  subject  matter  are  to  be  construed  together  is 
so  familiar  and  so  frequently  acted  upon  that  it  needs 
only  to  be  stated.  The  question  how  far,  if  at  all,  this 
rule  imports  into  a  promissory  note  the  collateral  agree- 
ments contained  in  an  accompanying  mortgage,  is  the 
question  to  be  considered  in  this  case.     *     *     *     This 


626  NEGOTIABLE  PAPER 

is  a  decidedly  revolutionary  proposition.  If  it  be  true 
both  the  business  world  and  the  courts  have  been  sadly 
in  error  for  many  years.  *  *  *  If  all  the  agree- 
ments contained  in  every  mortgage  are,  as  matter  of 
law,  imported  into  the  note,  these  propositions  would 
not  be  true,  for  the  general  rule  (except  as  changed  by 
statute)  is  that  negotiable  instruments  cannot  be  bound 
up  and  fettered  with  collateral  agreements  for  the  doing 
of  other  things  besides  the  payment  of  money,  and  retain 
their  negotiable  character.  Upon  the  principle  contended 
for,  the  most  simple  real  estate  mortgage  would  deprive 
the  note  which  it  secured  of  its  negotiable  character, 
because  it  would  import  into  the  note  one  or  more  col- 
lateral agreements  which  are  not  for  the  payment  of 
money.  Fortunately,  it  is  not  necessary  to  give  so 
violent  a  shock  to  the  well  understood  principles  of  law 
governing  the  negotiability  of  notes  and  mortgages. 
The  appellant's  contention  really  results  from  a  con- 
fusion of  ideas.  They  lay  down  the  well-understood 
proposition  that  contemporaneous  instruments  relating 
to  the  same  subject-matter  are  to  be  construed  together, 
and  conclude  that  it  follows  that  a  note  and  mortgage, 
though  separately  executed,  are  one  instrument,  and  that 
the  note  is  that  instrument.  The  rule  that  instruments 
are  to  be  construed  together  does  not  lead  to  this  result. 
Construing  together  simply  means  that,  if  there  be  any 
provisions  in  one  instrument  limiting,  explaining,  or 
otherwise  affecting  the  provisions  of  another,  they  will  be 
given  effect  as  between  the  parties  themselves  and  all 
persons  charged  with  notice,  so  that  the  intent  of  the 
parties  may  be  carried  out,  and  the  whole  agreement 
actually  made  may  be  effectuated.  This  does  not  mean 
that  the  provisions  of  one  instrument  are  imported  bodily 
into  another,  contrary  to  the  intent  of  the  parties.  They 
may  be  intended  to  be  separate  instruments,  and  to  pro- 
vide for  entirely  different  things,  as  in  the  very  case 
before  us.  The  note  is  given  as  evidence  of  the  debt 
and  to  fix  the  terms  and  time  of  payment.  It  is  usually 
complete  in  itself, — a  single,  absolute  obligation.     The 


CERTAINTY  OF  SUM  627 

purpose  of  the  mortgage  is  simply  to  pledge  certain 
property  as  security  for  the  payment  of  the  note.  The 
agreements  which  it  contains  ordinarily  have  no  bear- 
ing on  the  absolute  engagements  of  the  note,  but  simply 
relate  to  the  preservation  of  the  security  given  by  its 
terms;  such  as  the  payment  of  taxes,  the  insurance  of 
houses,  and  the  like.  While  the  two  instruments  will  be 
construed  together  wherever  the  question  as  to  the  nature 
of  the  actual  transaction  becomes  material,  this  does  not 
mean  that  the  mortgage  incorporated  into  the  note,  nor 
that  the  collateral  agreements  to  pay  the  taxes,  or  to 
insure  the  property,  or  that  the  mortgagee  might  insure 
in  case  of  default  by  the  mortgagor  and  have  an  addi- 
tional lien  therefor,  become  parts  of  the  note.  These 
agreements  pertain  to  another  subject,  namely,  the  pres- 
ervation intact  of  the  mortgaged  property.  The  prom- 
ise to  pay  is  one  distinct  agreement,  and,  if  couched  in 
proper  terms,  is  negotiable.  The  pledge  of  real  estate 
to  secure  that  promise  is  another  distinct  agreement, 
which  ordinarily  is  not  intended  to  affect  in  the  least  the 
promise  to  pay,  but  only  to  give  a  remedy  for  failure  to 
carry  out  the  promise  to  pay.  The  holder  of  the  note 
may  discard  the  mortgage  entirely,  and  sue  and  recover 
on  his  note ;  and  the  fact  that  a  mortgage  had  been  given 
with  the  note,  containing  all  manner  of  agreements  relat- 
ing simply  to  the  preservation  of  the  security,  would  cut 
no  figure.  A  pleading  alleging  such  facts  would  be 
stricken  out  as  frivolous  or  irrelevant.* ' 

Question  406:  Why  is  a  reference  in  a  note  to  a  mortgage  or 
trust  deed,  given  to  secure  the  note,  and  which  contains  provisions 
that  may  increase  the  extent  of  the  security  by  indefinite  amounts, 
without  effect  to  destroy  the  negotiability  of  the  note? 

Case  No.  407.  Uniform  Negotiable  Instruments  Act, 
Sec.  2. 

"The  sum  payable  is  a  sum  certain  within  the  mean- 
ing of  this  act,  although  it  is  to  be  paid : 


628  NEGOTIABLE  PAPER 

"1.  With  interest;  or 

"2.  By  stated  installments;  or 

"3.  By  stated  installments  with  a  provision  that  in 
default  in  payment  of  any  installment,  or  of  interest, 
the  whole  shall  become  due ;  or 

"4.  With  exchange  whether  at  a  fixed  rate,  or  at  the 
current  rate ;  or 

"5.  With  costs  of  collection  or  an  attorney's  fee  in 
case  payment  shall  not  be  made  at  maturity. ' ' 

Question  407:     (See  the  following  cases  and  questions.) 

Case  No.  408.  Carlon  v.  Kenealy,  12  M.  &  W.  (Eng.) 
139. 

Facts:  Suit  against  the  maker  by  the  indorsee  of  a 
promissory  note  promising  to  pay  one  T.  C,  or  order, 
521.  10s.  by  two  equal  installments,  on  the  first  of  May, 
1843,  and  the  first  of  November,  1843,  and  that  the  whole 
amount,  521.  10s.,  should  become  immediately  payable 
on  default  being  made  in  payment  of  the  first  installment. 
The  holder  alleged  that  the  first  installment  was  not  paid. 
The  defendant  contended  that  the  note  was  by  reason  of 
the  installment  provision  not  negotiable.' 

Pabke,  B. :  "Now,  to  hold  that  actions  could  not  be 
maintained  upon  such  notes  as  this,  would  be  to  impugn 
all  the  established  practice.  Almost  every  note  payable 
by  installments  has  such  a  condition.  It  is  not  a  con- 
tingency— it  depends  on  the  act  of  the  maker  himself; 
and  on  his  default,  it  becomes  a  promissory  note  for  the 
whole  amount.     *     *     * 

"Judgment  for  the  plaintiff." 

Question  408:  State  this  case,  the  question  presented  and  the 
Court's  decision. 

Case  No.  409.    Hastings  v.  Thompson,  54  Minnesota 
Reports,  184. 
Facts:    See  the  opinion. 


CERTAINTY  OF  SUM  629 

Mitchell,  J. :  "  The  only  point  raised  on  this  appeal 
is  whether  the  instruments  sued  on  are  promissory  notes, 
for,  if  they  are,  they  are  unquestionably  negotiable  under 
the  law  merchant.  They  are  promises  to  pay  specified 
sums  of  money  in  St.  Paul,  'with  current  exchange  on 
New  York  City;'  and  the  only  question  is  whether  this 
provision  as  to  exchange  renders  the  sums  required  to 
discharge  them  uncertain,  within  the  meaning  of  the 
familiar  rule  that  one  of  the  essential  qualities  of  a 
promissory  note  is  that  the  amount  to  be  paid  must  be 
fixed  and  certain,  and  not  contingent.  In  the  definitions 
of  a  promissory  note  or  bill  of  exchange  it  is  generally, 
if  not  always,  stated  that  the  amount  necessary  to  dis- 
charge it  must  be  ascertainable  from  the  face  of  the 
paper  itself,  without  having  to  refer  to  any  extrinsic 
evidence.  Construing  this  definition  literally,  it  must  be 
admitted  that  the  instruments  in  question  do  not  strictly 
fall  within  it,  for,  of  course,  extrinsic  evidence  must  be 
resorted  to  in  order  to  ascertain  the  rate  of  exchange  at 
a  given  time  between  two  places.  *  *  *  The  follow- 
ing are,  in  brief,  the  considerations  which  have  led  us 
to  the  conclusion  that  such  instruments  ought  to  be  held 
to  be  promissory  notes  under  the  law  merchant : 

"1.  The  reason  and  the  purpose  of  the  rule  that  the 
sum  to  be  paid  must  be  certain  is  that  the  parties  to  the 
instrument  may  know  the  amount  necessary  to  discharge 
it,  without  investigating  facts  not  within  the  general 
knowledge  of  every  one,  and  which  may  be  subject  to 
more  or  less  uncertainty,  or  more  or  less  under  the  influ- 
ence or  control  of  one  or  other  of  the  parties  to  the 
instrument.  The  provision  for  the  payment  of  the  cur- 
rent rate  of  exchange  between  the  place  of  payment  and 
some  other  place  is  not  within  the  reason  of  this  rule,  or 
subject  to  the  evils  or  inconveniences  which  it  was 
designed  to  prevent. 

"2.  The  law  merchant,  including  the  law  of  negotiable 
paper,  is  founded  upon,  and  is  the  creature  of,  commercial 
usage  and  custom.  Custom  and  usage  have  really  made 
the  law,  and  courts,  in  their  decisions  merely  declare  it. 


630  NEGOTIABLE  PAPER 

The  law  of  negotiable  paper  is  not  only  founded  on  com- 
mercial usage,  but  is  designed  to  be  in  aid  of  trade  and 
commerce.  Its  rules  should,  therefore,  be  construed  with 
reference  to  and  in  harmony  with  general  business 
usages,  and,  as  far  as  possible,  with  the  common  under- 
standing in  commercial  circles.     *     *     *  " 

Question  409:  What  was  the  provision  in  this  case  that  was 
in  question  as  affecting  the  negotiable  character  of  the  note? 
Why  did  the  Court  decide  that  the  note  was  negotiable  notwith- 
standing such  provision? 

Case  No.  410.     Oppenheimer  v.  Bank,  97  Tenn.  20. 

Facts:  This  was  a  suit  in  a  court  of  equity  to  enjoin 
the  bank  from  suing  on  three  promissory  notes,  read- 
ing as  follows : 

"  Trenton,  Tenn.,  June  3,  1889. 

"Nine  months  after  date  we  promise  to  pay  to  the 
order  of  Curtiss  Bros.,  or  bearer,  the  sum  of  five  hundred 
dollars  negotiable  and  payable  at  the  Exchange  Bank 
of  Trenton,  Tenn.,  for  value  received.  The  drawers  and 
endorsers*  severally  waive  presentment  for  payment,  pro- 
test and  notice  of  protest  and  non-payment  of  this  note, 
and,  in  case  of  suit,  agree  to  pay  reasonable  attorney's 
fees  for  collecting  the  same. 

"$500.00  due  February  3,  1890. 

"  (sd)  (By  four  parties.) " 

The  makers  of  the  note  allege  that  the  notes  were 
secured  through  fraud  by  Curtiss  Brothers  and  that  they 
are  non-negotiable  instruments  because  the  sum  named 
is  uncertain  in  amount  and  that  the  present  holders, 
therefore,  take  subject  to  the  fraud. 

Point  Involved:  Whether  a  provision  for  payment  of 
"reasonable  attorney's  fees"  in  case  suit  becomes  neces- 
sary for  the  collecting  of  the  instrument  renders  the  sum 
payable  by  the  note  uncertain,  and  the  note  therefore 
non-negotiable. 

McAllister,  J.:  "*  *  *  The  next  question  pre- 
sented is  whether  the  stipulation  in  respect  of  payment 


CERTAINTY  OP  SUM  631 

of  attorney's  fees,  written  in  the  face  of  the  note,  destroys 
its  negotiability  and  thus  dismantles  the  note,  allowing 
proof  of  fraud  in  its  execution.  The  question  presented 
has  given  rise  to  much  judicial  controversy,  and  the  deci- 
sions announced  in  different  states  and  jurisdictions  are 
by  no  means  reconcilable,  and,  since  the  question  is  one 
of  first  impression  in  this  state,  we  shall,  after  a  review 
of  the  authorities  adopt  the  view  which  most  commends 
itself  to  our  reason  and  judgment. 

"Mr.  Tiedeman,  in  the  work  already  cited,  Commercial 
Paper,  Sec.  28  (b)  says:  'Bills  and  notes,  particularly 
the  latter,  sometimes  contain  stipulations  that,  if  not  paid 
voluntarily,  the  drawer  or  maker  will  pay  the  attorney 
and  collection  fee.  It  has  been  much  discussed  what  is 
the  effect  of  such  a  stipulation  upon  the  legal  character 
of  the  instruments  to  which  they  are  added. 

"  'A  few  decisions  maintain  that  the  stipulation  is  in 
the  nature  of  a  usurious  charge  and  avoids  the  whole 
transaction  under  the  laws  prohibiting  usury  (citing 
authorities)     *     *     *. 

"  'In  a  large  number  of  cases  the  stipulation  is  held 
to  be  valid,  but  because  it  renders  the  gross  sum  to  be 
recovered  on  the  instrument  uncertain,  its  insertion  in  a 
bill  or  note  is  declared  to  destroy  its  negotiability.'  (Cit- 
ing authorities)     *     *     *. 

1 '  '  There  are  also  other  cases  which  not  only  recognize 
the  validity  of  the  stipulation,  but  also  the  negotiability 

of  the  paper  on  which  it  appears.'    (Citing  authorities) 

#     *     # 

1 '  Upon  a  careful  review  of  the  authorities,  we  can  per- 
ceive no  reason  why  a  note,  otherwise  endowed  with  all 
the  attributes  of  negotiability,  is  rendered  non-nego- 
tiable by  a  stipulation  which  is  entirely  inoperative  until 
after  the  maturity  of  the  note  and  its  dishonor  by  the 
maker.     *     *     * 

"We  are,  therefore,  of  opinion  the  decree  of  the  chan- 
cellor adjudging  said  notes  non-negotiable  was  erroneous. 


632  NEGOTIABLE  PAPER 

Question  410:  (1.)  What  was  the  provision  in  this  case  upon 
which  contention  was  made?  What  was  the  basis  of  that  con- 
tention ?    How  did  the  Court  hold  ? 

(2.)  Is  the  negotiable  instruments  law  in  accord  with  this 
case? 

Sec.  301.    Payment  in  Money. 

Case  No.  411.    Roberts  v.  Smith,  58  Vermont,  492. 

Facts:  Suit  on  a  note:  "November  17,  1849.  Two 
years  from  date  for  value  received  I  promise  to  pay.  J.  S. 
King  or  bearer  one  ounce  of  gold. 

"(sd)  E.  P.  Smith." 

Defense:  That  the  note  is  not  negotiable,  and  cannot 
be  sued  on  as  such. 

Point  Involved:  Whether  an  instrument  not  payable 
in  money  is  negotiable. 

Veasey,  J.:  "•  *  *  such  an  instrument  is  not 
negotiable  because  not  payable  in  money.  *  *  *  It  is 
but  a  promise  to  pay,  that  is,  deliver,  a  certain  amount 
of  merchandise  definite  in  amount.  Because  gold  enters 
into  the  composition  of  money,  we  cannot  assume  that 
'an  ounce  of  gold'  is  money,  or  that  it  has  a  fixed  and 
unvarying  value.  *  *  *  Although  it  has  the  form  of 
a  promissory  note,  it  is  not  such,  and  cannot  be  treated 
as  such  in  pleading.  It  must  be  treated  as  a  simple  con- 
tract for  the  delivery  of  merchandise.    *     *     *" 

Question  411:    State  the  above  case  and  the  Court's  decision. 

Case  No.  412.  Martin  v.  Chauntry,  2  Strange  Reports 
(Eng.)  1271. 

"The  Court  held  on  error  from  C.  B.  that  a  note  to 
deliver  up  horses  and  a  wharf,  and  pay  money  at  a  par- 
ticular day  could  not  be  counted  on  as  a  note  within  the 
statute ;  and  therefore  reversed  the  judgment. ' ' 

Question  412:  What  did  the  instrument  in  this  case  provide? 
Was  it  negotiable ?    Why? 


PAYMENT  IN  MONEY  633 

Case  No.  413.  Matthews  v.  Houghton,  11  Maine  Re- 
ports, 377. 

Facts:    Suit  on  the  following  note : 

"Madison,  July  31, 1826. 
"For  value  received,  I  promise  to  pay  Jacob  Matthews 
or  order  forty-five  dollars  in  grain,  at  the  market  price 
next  January,  or  forty  dollars  in  two  years  from  next 
January  and  interest.  (sd)  Nathan  Houghton. " 

Mueller,  C.  J. :  "*  *  *  There  can  be  no  possible 
doubt  as  to  the  character  of  the  note,  clearly  it  is  not  a 
negotiable  note.     *     *     *" 

Question  413:  Who  had  the  option  (the  maker  or  holder)  in 
paying  the  money  or  delivering  the  grain  1  Was  the  instrument 
negotiable  ? 

Case  No.  414.    Hodges  v.  Schuler,  22  N.  Y.  114. 
Facts:     Suit  by  the  indorsee  of  a  note  against  the 
indorsers.    The  note  read  as  follows : 

"RUTLAND  AND  BURLINGTON  RAILROAD 
COMPANY. 

"No.  253.  $1,000.00 

"Boston,  April  1,  1850. 
' '  In  four  years  from  date  for  value  received,  the  Rut- 
land and  Burlington  Railroad  Company  promises  to  pay 
in  Boston,  to  Messrs.  W.  S.  and  D.  W.  Shuler,  or  order, 
$1,000,  with  interest  thereon,  payable  semi-annually,  as 
per  interest  warrants  hereto  attached,  as  the  same  shall 
become  due ;  or  upon  the  surrender  of  this  note,  together 
with  the  interest  warrants  not  due  to  the  treasurer,  at- 
any  time  until  six  months  of  its  maturity,  he  shall  issue 
to  the  holder  thereof  ten  shares  in  the  capital  stock  in  said 
company  in  exchange  therefor,  in  which  case  interest 
shall  be  paid  to  the  date  to  which  a  dividend  of  profits 
shall  have  been  previously  declared,  the  holder  not  being 
entitled  to  both  interest  and  accruing  profits  during  the 
same  period. 

(Signed) 


634  NEGOTIABLE  PAPER 

Defense:  That  the  defendant  is  not  liable  as  indorser 
according  to  the  rules  of  negotiable  paper,  for  the  default 
of  the  principal  maker,  because  the  paper  sued  on  is  not 
negotiable,  being  for  the  payment  of  money  or  stock,  in 
the  alternative. 

Point  Involved:  Whether  a  promise  in  the  alternative 
to  pay  money  or  do  something  else  at  the  option  of  the 
holder,  destroys  negotiability  of  an  instrument  otherwise 
negotiable. 

"Wright,  J.:  "The  single  question  is,  whether  the 
defendants  can  be  held  as  indorsers.  It  is  insisted  that 
they  cannot,  for  the  reasons,  first,  that  the  instrument 
set  out  in  the  complaint,  is  neither  in  terms  nor  legal 
effect  a  negotiable  promissory  note,  but  a  mere  agree- 
ment ;  the  indorsement  in  blank  of  the  defendants,  operat- 
ing, if  at  all,  only  as  a  mere  transfer,  and  not  as  an 
engagement  to  fulfill  the  contract  of  the  railroad  company 
in  case  of  its  default;    *     *     *. 

"The  instrument  on  which  the  action  was  brought  has 
all  the  essential  qualities  of  a  negotiable  promissory  note. 
It  is  for  the  unconditional  payment  of  a  certain  sum  of 
money,  at  a  specified  time,  to  the  payee's  order.  It  is  not 
an  agreement  in  the  alternative,  to  pay  in  money  or  rail- 
road stock.  It  was  not  optional  with  the  makers  to  pay 
in  money  or  stock  and  thus  fulfill  their  promise  in  either 
of  two  specified  ways;  in  such  case,  the  promise  would 
have  been  in  the  alternative.  The  possibility  seems  to 
have  been  contemplated  that  the  owner  of  the  stock  might, 
before  its  maturity,  surrender  it  in  exchange  for  stock, 
thus  canceling  it  and  its  money  promise ;  but  that  promise 
was  nevertheless  absolute  and  unconditional,  and  was  as 
lasting  as  the  note  itself.  In  no  event  could  the  holder 
require  money  and  stock.  It  was  only  upon  a  surrender 
of  the  note  that  he  was  to  receive  stock ;  and  the  money 
payment  did  not  mature  until  six  months  after  the  hold- 
er's right  to  exchange  the  note  for  stock  had  expired.  "We 
are  of  the  opinion  that  the  instrument  wants  none  of  the 
essential   requisites   of  a  negotiable   promissory  note. 


PAYMENT  IN  MONEY  635 

*  *  *  The  engagement  of  the  railroad  company  was 
to  pay  the  sum  of  $1,000  in  four  years  from  date,  and  its 
promise  could  only  be  fulfilled  by  the  payment  of  the 
money  at  the  day  named. ' ' 

Question  414:  In  what  capacity  was  the  defendant  sought 
to  be  held  in  this  case?  What  was  his  defense?  How  did  the 
court  dispose  of  it?  Who  (the  maker  or  holder)  had  the  option 
given  in  the  note  ? 

Case  No.  415.    Negotiable  Instruments  Act,  Sec.  6. 
"The  validity  and  negotiable  character  of  an  instru- 
ment are  not  affected  by  the  fact  that : 

a*     *     * 

"5.  (It)  designates  a  particular  kind  of  current  money 
in  which  payment  is  made. ' ' 

Question  415:    State  the  above  provision. 

Case  No.  416.    Keith  v.  Jones,  9  Johnson  *s  Eeports,  120. 

Per  Curiam:  The  first  count  in  the  declaration,  and  to 
which  there  is  a  general  demurrer,  is  good.  The  note 
therein  stated  is  a  negotiable  note,  under  the  statute ;  and 
being  declared  to  be  payable  in  York  State  bills  or  specie, 
is  the  same  thing  as  being  made  payable  in  lawful  current 
money  of  the  state;  for  the  bills  mentioned  mean  bank 
paper,  which  is  here,  in  conformity  with  common  usage 
and  common  understanding  regarded  as  cash. ' ' 

Question  416:  What  was  the  objection  raised  to  the  nego- 
tiability of  the  instrument  in  this  case?  How  did  the  court 
answer  it? 

Case  No.  417.    Hogue  v.  Williamson,  85  Tex.  553. 
Facts :    Suit  on  a  note  reading  as  follows : 

"Saltillo,  Jan.  25,  1888.  On  or  before  May  1,  1888,  I 
promise  to  pay  C.  C.  Hogue  or  order,  One  Thousand 
Mexican  Silver  Dollars. 

(Sd)  Geo.  S.  Williamson.,, 


636  NEGOTIABLE  PAPER 

The  plaintiff,  Hogue,  put  in  evidence  this  note  and 
proved  the  value  in  American  money  of  Mexican  silver 
dollars.  He  then  rested  his  case.  The  defendant  put  in 
no  testimony  and  asked  judgment  on  the  ground  that 
plaintiff  had  proved  no  case.  [In  suit  on  a  simple  non- 
negotiable  contract,  the  plaintiff  must  prove  the  consid- 
eration and  the  breach  by  defendant  before  he  has  made 
a  prima  facie  case,  but  in  a  suit  on  a  negotiable  instru- 
ment a  prima  facie  case  is  made  by  the  proof  of  the 
instrument  sued  on.]  Defendant  had  judgment  below 
and  plaintiff  appeals  to  the  present  Court. 

Point  Involved:  Whether  an  instrument  which  is  pay- 
able in  foreign  money  is  negotiable. 

Gaines,  J.:    "*     *     * 

' 'We  are  of  the  opinion  that  the  instrument  in  question 
is  a  promissory  note.  It  is  such  in  form  and  in  substance, 
unless  the  fact  that  the  sum  payable  is  expressed  in  Mex- 
ican silver  dollars  should  make  a  difference.  Speaking 
of  the  sum  for  which  a  bill  of  exchange  must  be  drawn, 
Mr.  Chitty  says :  'It  may  be  the  money  of  any  country.' 
Chitty,  Bills  &  Notes,  160.  Judge  Story  says:  'But, 
provided  the  note  be  for  the  payment  of  money  only,  it 
is  wholly  immaterial  in  the  currency  or  money  of  what 
country  it  may  be  payabler  It  may  be  payable  in  the 
money  or  currency  of  England  or  France  or  Spain  or 
Holland  or  Italy  or  of  any  other  country.  It  may  be  pay- 
able in  coins,  such  as  in  pounds  sterling,  livres,  turnoises, 
francs,  florins,  etc.,  for  in  all  these  and  the  like  cases  the 
sum  of  money  to  be  paid  is  fixed  by  the  par  of  exchange, 
or  the  known  denomination  of  the  currency  with  reference 
to  the  par.'  Story,  Prom.  Notes,  Sec.  17.  The  same  rule 
is  distinctly  laid  down  in  1  Dan.  Neg.  Inst.  Sec.  58,  and 
in  Tiedeman,  Commercial  Paper,  Sec.  29b.     *     *     *" 

Question  417:  (1.)  What  was  the  objection  to  the  above  in- 
strument as  negotiable  paper  ?  How  did  the  court  decide  ?  Give 
its  reason. 


CHAPTER    FIFTY-POUR 

FORMAL  REQUISITES:  (5)  CERTAINTY  OF  TIME 
OF  PAYMENT— DEMAND  PAPER 

(Payment  must  be  on  demand  or  at  a  fixed  or  deter- 
minable future  time.) 

§  302.  Demand  paper.  §  303.  Fixed  or  determinable  future 

time. 

Sec.  302.    Demand  Paper. 

Case  No.  418.  Uniform  Negotiable  Instruments  Act, 
Sec.  7. 

"An  instrument  is  payable  on  demand: 

"1.  Where  it  is  expressed  to  be  payable  on  demand 
or  at  sight,  or  on  presentation;  or 

"2.  In  which  no  time  for  payment  is  expressed. 

"Where  an  instrument  is  issued,  accepted  or  indorsed 
when  overdue,  it  is,  as  regards  the  person  so  issuing, 
accepting  or  indorsing  it,  payable  on  demand.' ' 

Question  418:  When  is  a  negotiable  instrument  payable  on 
demand  ? 

Case  No.  419.    Hall  v.  Toby,  110  Pa.  St.  318. 
Facts:    Suit  on  the  following  note : 

"551.50.  Warren,  Aug.  18,  1879. 

"For  value  received,  I  promise  to  pay  to  Wm.  Toby, 
or  order,  five  hundred  and  fifty-one  50/100  dollars  with 
interest, 
(endorsed  by  Toby)  Orris  Hall.,, 

637 


638  NEGOTIABLE  PAPER 

Per  Curiam:  "This  note  was  negotiable,  *  *  * 
As  no  time  of  payment  was  therein  expressed,  the  law 
adjudges  the  money  to  be  payable  immediately.  A  right 
of  action  accrued  at  once  and  would  be  barred  by  the 
Statute  of  Limitations  at  the  expiration  of  six  years 
thereafter    *     *     •" 

Question  419:  What  was  the  alleged  defect  in  this  instrument 
and  how  did  the  court  dispose  of  the  objection  ? 

(Note :  As  to  when  demand  paper  is  considered  overdue,  see 
cases  462  and  463,  post.) 

Sec.  303.    Fixed  or  Determinable  Future  Time. 

Case  No.  420.     Negotiable  Instruments  Act,  Sec.  4. 

"An  instrument  is  payable  at  a  determinable  future 
time,  within  the  meaning  of  this  Act,  which  is  expressed 
to  be  payable ; 

u  1.  At  a  fixed  period  after  date  or  sight ;  or 

"2.  On  or  before  a  fixed  or  determinable  future  time 
specified  therein;  or 

"3.  On  or  at  a  fixed  period  after  the  occurrence  of  a 
specified  event,  which  is  certain  to  happen,  though  the 
time  of  happening  be  uncertain. 

"An  instrument  payable  upon  a  contingency  is  not 
negotiable  and  the  happening  of  the  event  does  not  cure 
the  defect." 

Question  420:  In  what  cases  is  an  instrument  payable  at  a 
determinable  future  time  ? 

Case  No.  421.    Mattison  v.  Marks,  31  Michigan,  421. 

Cooley,  J.:  "*  *  *  The  objection  to  this  instru- 
ment is,  that  it  promises  to  pay  a  certain  sum  of  money 
'on  or  before'  a  day  named;  and  this  it  is  said  is  not  a 
promise  to  pay  on  a  day  certain  and  consequently  can- 
not be  a  promissory  note.  *  *  *  It  seems  to  us  that 
this  note  is  payable  at  a  time  certain.  It  is  payable  cer- 
tainly and  at  all  events,  on  a  day  particularly  named; 


CERTAINTY  OF  TIME  OF  PAYMENT  639 

and  at  that  time,  and  not  before,  payment  might  be 
enforced  against  the  maker.  It  is  impossible  to  say  that 
this  paper  makes  the  payment  subject  to  any  contingency, 
or  puts  it  upon  any  condition.  The  legal  rights  of  the 
holder  are  clear  and  certain;  the  note  is  due  at  the  time 
fixed  and  is  not  due  before.  Thus  the  maker  may  pay 
sooner  if  he  shall  choose  this  option,  but  this  option,  if 
exercised,  would  be  a  payment  in  advance  of  the  legal 
liability  to  pay,  and  nothing  more.  Notes  like  this  are 
common  in  commercial  transactions,  and  we  are  no^ 
aware  that  their  negotiable  quality  is  ever  questioned  in 
business  dealings.     *     *     *" 

Question  421:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Case  No.  422.    First  National  Bank  of  New  Windsor  v. 

Bynum,  84  N.  C.  24. 

Ashe,  J.:    "*     *     * 

"But  there  is  another  serious  objection  to  the  claim 
set  up  for  the  negotiability  of  this  instrument.  It  stipu- 
lates that  the  payee  shall  have  power  to  declare  the 
note  due  at  any  time  they  may  deem  the  note  insecure, 
even  before  the  maturity  of  the  same.  This  divests  it 
of  the  quality  of  certainty  in  the  time  of  payment. 
*  *  *  The  time  of  payment  may  be  hastened  at  the 
option  of  the  payees  and  is  therefore  uncertain.     *     *     * 

Question  422:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  this  case. 

Case  No.  423.  Cook  v.  Colehan,  2  Strange 's  Reports 
(Eng.)  1217. 

"On  error  from  C.  B.  a  note  to  pay  A,  or  order  (a  cer- 
tain sum)  six  weeks  after  the  death  of  the  defendant's 
father,  for  value  received,  was  held  to  be  a  negotiable 
note  within  the  statute  3  Ann.  c.  9,  for  there  is  no  con- 
tingency whereby  it  may  never  become  payable,  but  it 
is  only  uncertain  as  to  time,  which  is  the  case  of  all  bills 


640  NEGOTIABLE  PAPER 

payable  at  so  many  days  after  sight.  In  communi  banco 
it  held  three  arguments,  and  was  held  good  upon  a  sol- 
emn resolution  delivered  by  Chief  Justice  Willes. 

Question  423:  What  was  the  question  presented  in  the  above 
case  and  how  the  Court  decided  it  ? 

Case  No.  424.  Kelley  v.  Hemingway,  13  Illinois  Re- 
ports, 60. 

Facts:  Suit  by  an  indorsee  on  a  note  payable  when 
|the  payee  is  "twenty-one  years  old."  Evidence  offered 
that  he  had  arrived  at  that  age. 

Treat,  C.  J. :  "*  *  *  If  the  terms  of  the  instru- 
ment leave  it  uncertain  whether  the  money  will  ever 
become  payable  it  cannot  be  considered  as  a  promissory 
note.  *  *  *  Thus  a  promise  in  writing  to  pay  a  sum 
of  money  when  a  particular  person  shall  be  married,  is 
not  a  promissory  note,  because  it  is  not  certain  that  he 
will  ever  be  married.  *  *  *  So  of  a  promise  to  pay 
when  a  particular  ship  shall  return  from  sea,  for  it  is  not 
certain  the  ship  will  ever  return.  *  *  *  In  all  such 
cases  the  promise  is  on  a  contingency  that  may  never 
happen.     *     *     * 

n*     *     #     rp^  fac£  {.j^  ^e  payee  lived,  till  he  was 

twenty-one  years  of  age  makes  no  difference.  It  was  not 
a  promissory  note  when  made,  and  it  could  not  become 
such  by  matter  ex  post  facto.     *     *     *  " 

Question  424:  (1.)  When  was  the  above  instrument  pay- 
able ?  Was  it  negotiable  ?  Did  the  happening  of  the  event  affect 
its  character  as  a  negotiable  instrument? 

(2.)  Might  this  instrument  be  good  as  a  non-negotiable  con- 
tract?   What  else  would  have  to.  appear? 

(3.)     Is  the  following  instrument  negotiable? 

"Chicago,  July  12,  1887. 
"To  A.  B.: 

"Please  pay  to  M.  N.,  or  order,  for  stone  in  your  building, 
$600,  in  installments  as  follows :  $200  when  first  floor  joists  are 
in ;  $200  when  building  is  ready  for  roof ;  $200  when  stoops  are 
finished ;  and  charge  same  to  my  account. 

"(sd.)  C.  D." 


CERTAINTY  OF  TIME  OF  PAYMENT  641 

Case  No.  425.     Glidden  v.  Henry,  104  Ind.  278. 

Facts:  A  note  provided  that  the  payee  or  holder  might 
extend  the  time  of  payment  indefinitely  as  they  saw  fit, 
thus  giving  the  payee  or  holder  the  power  to  prevent,  if 
so  desired,  the  maturing  of  the  note. 

Point  Involved:  Whether  the  provision  in  a  note  that 
the  holder  may  extend  the  time  of  payment  at  his  pleas- 
ure renders  the  instrument  non-negotiable. 

The  Coukt:  "*  *  *  From  an  inspection  of  the 
note  it  is  impossible  to  tell  when  it  may  mature  because 
it  is  impossible  to  know  what  extension  may  have  been, 
or  may  hereafter  be,  agreed  upon.  No  definite  time  is 
fixed,  nor  is  the  maturity  of  the  note  dependent  upon  an 
event  that  must  inevitably  happen.  The  condition  is  not 
that  something  may  happen,  or  be  done,  that  will  mature 
the  note  before  the  time  named,  thus  leaving  that  time 
as  fixed  and  certain,  if  the  thing  do  not  happen,  or  be 
not  done ;  but  the  condition  is  that  the  time  named  may 
be  displaced  by  another,  uncertain  and  indefinite  time, 
as  the  parties  may  agree. 

"This  distinguishes  the  case  from  some  of  the  cases 
cited  by  appellee,  which  hold  that  so  long  as  a  definite 
time  of  payment,  as  fixed  in  the  note  remains  fixed  and 
certain,  the  note  retains  its  negotiability,  although  by 
certain  agreed  conditions  it  may  be  matured  before  that 
time.  The  case  here  is  also  distinguishable  from  another 
class  of  cases  which  hold  that  the  time  of  payment  may 
be  dependent  upon  an  event  that  must  inevitably  happen, 
such  as  the  death  of  the  maker,  the  coming  of  the  seasons, 
etc.  The  precise  question  involved  here  has  been  passed 
upon  by  the  supreme  courts  of  Iowa  and  Michigan,  and 
in  each  case  it  was  held  that  the  condition  destroyed  the 
negotiability  of  the  note. 

"We  conclude  from  the  foregoing  that  the  notes  in  suit 
are  not  negotiable  under  the  statute  as  inland  bills  of 
exchange,  and  that,  therefore,  whatever  defenses  appel- 
lant might  have  set  up  and  made  available  as  against 
Nugen,  the  payee,  he  may  set  up  and  make  available  as 
against  appellee.     *     *     * 


642  NEGOTIABLE  PAPER 

"The  judgment  is  reversed  with  costs." 

Question  425:  State  the  provision  in  this  note  which  was  in 
question,  and  what  the  court  decided  ? 

Case  No.  426.  First  National  Bank  of  Pomeroy  v.  But- 
tery, 17  N.  D.  326;  16  L.  E.  A.,  n.  s.,  878. 

Facts:  Suit  on  a  note  due  Oct.  1,  1903,  but  containing 
the  following  provisions :  ' '  The  makers  on  and  indorsers 
herein  severally  waive  presentment  of  payment  and  notice 
of  protest  and  consent  that  the  time  of  payment  may  be 
extended  without  notice.  ■ ' 

Point  Involved:  Whether  this  provision  destroyed 
negotiability. 

Spalding,  J.:  "*  *  *  There  is  an  apparent  con- 
flict of  authorities  as  to  whether  this  or  similar  agree- 
ments render  the  note  non-negotiable.  *  *  *  The 
doctrine  of  the  courts  seems  to  be  that  when  the  maker 's 
promise  will  at  some  time  be  absolutely  enforceable  and 
where  the  event  and  time  and  duty  of  payment  is  one 
over  which  the  holder  will  have  entire  control,  there  is  no 
such  uncertainty  regarding  it,  as  renders  the  note  non- 
negotiable.     *     *     *" 

Morgan,  Chief  Justice,  dissenting:  "I  am  unable  to 
concur  *  *  *.  From  the  face  of  the  note  it  seems  to 
me  conclusive  that  it  does  not  show  when  the  note  may 
become  due  and  payable  *  *  *.  It  does  not  seem  to 
me  to  be  a  sound  conclusion  to  say  that  the  note  states 
a  fixed  day  of  payment  when  it  also  states  that  the  day 
stated  may  not  represent  the  date  of  payment  if  the 
stipulation  as  to  extension  that  follows  is  put  into  effect. 
The  note  cannot  be  said  to  be  a  demand  note,  as  by  its 
very  terms,  it  is  not  such.  *  *  *  On  principal  and 
authority  the  note  should  be  held  non-negotiable. '  ■ 

Question  426:  What  was  the  provision  in  this  note  that 
brought  its  negotiability  into  question?  Was  the  note  held 
negotiable  or  not?  Is  the  decision  in  conflict  with  Glidden  v. 
Henry  ?  Do  you  think  the  decision  of  the  court  or  the  dissenting 
opinion  the  stronger? 


CERTAINTY  OF  TIME  OF  PAYMENT  643 

Case  No.  427.     Stitzel  v.  Miller,  250  111.  72. 

Facts:  Suit  by  an  indorsee  on  a  note  containing  the 
following  provision:  "We  also  agree  that  in  case  said 
note  is  not  paid  at  maturity,  that  it  is  at  the  option  of  the 
holder  hereof  to  extend,  as  he  deems  proper,  the  payment 
of  the  above  note,  and  that  said  extension  shall  not  in 
any  manner  release  one  or  either  of  us  from  the  pay- 
ment hereof."  Defendant  contends  that  the  note  sued  on 
as  a  negotiable  instrument  is  not  negotiable  on  account 
of  this  provision,  and  that  therefore  the  indorsee  could 
not  bring  suit  thereon  in  his  own  name  according  to  the 
rules  of  negotiable  paper. 

Point  Involved:  Whether  the  instrument  sued  on  is 
rendered  non-negotiable  by  the  provision  stated. 

Mr.  Justice  Carter:    "*     *     * 

' '  The  contention  that  said  quoted  words  gave  the  holder 
the  authority  to  extend  the  note  as  he  pleased;  that  it 
could  not  be  known  what  extensions  he  might  grant,  and 
that  therefore  the  time  when  the  note  become  due  and 
payable  was  uncertain  and  indeterminate,  rendering  the 
note  non-negotiable,  cannot  be  sustained.  The  note 
expressly  provides  that  such  option  to  extend  can  be  exer- 
cised only  upon  the  failure  of  the  payors  to  make  pay- 
ment at  its  maturity.  The  time  of  payment  is  certain. 
The  note  is  dated  February  22,  1908,  and  payable  one 
year  thereafter.     *     *     * " 

Question  427 :  What  were  the  provisions  of  this  note?  What 
reasons  did  the  court  give  for  holding  it  negotiable? 


CHAPTER    FIFTY-FIVE 

FORMAL  REQUISITES:  (6)  WORDS  OF  , 
NEGOTIABILITY 

§  304.  What  are  words  of  negotia-       §  307.  When  instrument  payable  to 

bility  ?  Dearer. 

§  305.  Such  words  a  formal  requisite. 
§  306.  When  instrument  payable  to 

order. 

Sec.  304.    What  Are  Words  of  Negotiability. 

Case  No.  428.    Negotiable  Instruments  Act,  Sec.  1. 
"An  instrument  to  be  negotiable     *     *     *     must  be 
payable  to  order  or  to  bearer. ' ' 

Question  428:    What  are  words  of  negotiability? 

Sec.  305.    Such  Words  a  Formal  Requisite. 

Case  No.  429.    Wettlaufer  v.  Baxter,  125  S.  W.  Re- 
porter (Ky.)  741.     (1910.) 
Facts  and  Point  Involved:    Stated  in  the  opinion. 

Carroll,  J.:  "In  the  State  of  New  York  on  July  3, 
1905,  the  Buffalo  Carriage  Top  Company  executed  to 
Newton  J.  Baxter  the  following  note :  'January  15, 1906, 
after  date  we  promise  to  pay  to  Newton  J.  Baxter,  two 
hundred  and  fifty  dollars  at  58  Carroll  St.,  Buffalo,  N.  Y.' 
On  the  back  of  the  note  Newton  J.  Baxter  wrote  his  name, 
and  before  its  maturity,  it  was  discounted  by  appellant, 
Wettlaufer,  and  delivered  to  him  by  Baxter.  When  the 
note  fell  due  it  was  presented  to  the  Buffalo  Carriage  Top 

644 


WORDS  OF  NEGOTIABILITY  645 

Company  for  payment  and  payment  refused.  Thereupon 
the  note  was  protested  by  a  notary  and  notice  of  its  dis- 
honor mailed  to  Baxter.  *  *  *  Baxter  declining  to 
pay  the  note,  suit  was  brought  on  it  against  him.     *     *     * 

' '  The  contention  of  counsel  for  Baxter  is  that  the  note 
was  not  a  negotiable  instrument.     *     *     * 

<<  *  *  #  jn  an  articie  in  7  Cyc,  page  606,  by  a  well 
known  writer  on  commercial  paper  it  is  said :  '  The  usual 
form  of  negotiable  paper  is  a  provision  for  payment  to 
"order"  or  "bearer."  '  These  and  similar  words  are  in 
general  necessary  to  its  negotiability,  *  *  *.  Bills 
payable  to  bearer  were  formerly  held  to  be  non-nego- 
tiable, as  being  without  words  of  transfer ;  but  they  are 
now  recognized  as  negotiable  and  transferable  by  deliv- 
ery. Making  an  instrument  payable  'to  the  order  of  a 
certain  person  is  the  same  as  to  such  person  'or  order,' 
and  in  like  manner  to  a  person  named  'or  bearer'  is  the 
same  in  effect  as  'to  bearer.'  Without  words  of  negotia- 
bility, purchasers  take  the  bill  or  note  subject  to  all 
defenses  which  were  available  between  the  original  par- 
ties, and  if  it  was  originally  non-negotiable,  as  against 
the  original  parties,  it  will  not  be  rendered  negotiable  by 
subsequent  transfer  in  negotiable  form. '     *     *     * 

"*  *  *  This  note  in  our  opinion,  which  was  pay- 
able to  Baxter  alone,  and  did  not  contain  the  words  'to 
order'   or   'bearer'   was   not   a  negotiable   instrument. 


Question  429:  .What  was  the  objection  raised  to  the  negotia- 
bility of  this  instrument  ?  Upon  what  facts  did  the  suit  arise  ? 
How  did  the  court  dispose  of  the  objection? 

Sec.  306.    When  Instrument  Payable  to  Order. 

Case  No.  430.     Negotiable  Instruments  Act,  Sec.  8. 

"It  may  be  drawn  payable  to  the  order  of: 

"1.  A  payee  who  is  not  maker,  drawer,  or  drawee; 

"2.  The  drawer  or  maker;  or 

"3.  The  drawee;  or 


646  NEGOTIABLE  PAPER 

"4.  Two  or  more  payees,  jointly;  or 

"5.  One  or  some  of  several  drawees;  or 

"6.  The  holder  of  an  office  for  the  time  being. 

1  'When  the  instrument  is  payable  to  order  the  payee 
must  be  named  or  indicated  therein  with  reasonable  cer- 
tainty.' ' 

Question  430:  In  what  various  ways  may  an  instrument  be 
payable  to  order? 

Case  No.  431.  Zander  v.  N.  Y.  Security  &  Trust  Co., 
78  N.  Y.  Supp.  900. 

Facts:  In  this  case  there  was  a  suit  brought  upon  an 
instrument  promising  to  pay  to  one  Caroline  Zander,  "or 
to  her  assigns.' '    Further  facts  appear  in  the  opinion. 

Point  Involved:  Whether  an  instrument  payable  to 
one  or  his  assigns  may  be  regarded  as  payable  to  order. 

"It  is  alleged  by  the  complaint,  and  admitted  by  the 
demurrer  that  on  or  about  July  11,  1901,  the  plaintiff 
deposited  with  the  defendant  the  sum  of  $500,  and 
received  therefor  the  following  certificate  or  receipt : 

"  'The  New  York  Security  and  Trust  Company,  New 
York,  July  11,  1901,  has  received  from  Caroline  Zander 
the  sum  of  five  hundred  dollars,  of  current  funds,  upon 
which  the  said  company  agrees  to  allow  interest  at  the 
annual  rate  of  three  per  cent,  from  this  date,  and  on  five 
days '  notice  will  repay,  in  current  funds,  the  like  amount 
with  interest,  to  the  said  Caroline  Zander  or  her  assigns, 
on  return  of  this  certificate,  which  is  assignable  only  on 
the  books  of  the  company. ' 

"Then  followed  provisions  as  to  the  reduction  of  dis- 
continuance of  interest,  not  material  here. 

"Plaintiff  always  remained  the  owner  of  the  certificate ; 
has  never  assigned  it,  or  any  part  thereof,  or  in  any  way 
indorsed  or  transferred  it,  or  any  interest  therein. 
Before  August  9, 1901,  she  lost  or  inadvertently  destroyed 
the  certificate,  and  though  she  has  diligently  searched, 
she  has  been  unable  to  find  it,  and  on  August  9,  1901,  she 
notified  defendant  of  the  loss  of  the  certificate.  She  has 
duly  demanded  of  defendant  the  issue  of  a  new  certifi- 


WORDS  OF  NEGOTIABILITY  647 

cate  or  the  payment  of  the  amount  of  the  deposit.  The 
demurrer  is  stated  to  be  interposed  merely  for  the  pur- 
pose of  enabling  the  defendant  to  insist  that  the  plaintiff 
shall  be  required  to  give  the  security  specified  in  section 
1917,  Code  Civ.  Proc.  That  section  refers  t»  lost  nego- 
tiable paper,  and  the  question  which  presents  itself  is, 
therefore,  whether  or  not  the  certificate  of  deposit  given 
by  defendant  is  negotiable.  Section  20,  c.  612,  Laws  1897, 
known  as  the  'Negotiable  Instruments  Law/  declares  that 
an  instrument,  to  be  negotiable,  'must  be  payable  to  order 
or  to  bearer '  and  in  this  respect  is  merely  declaratory  of 
the  law  of  negotiable  paper  as  it  existed  before  the 
passage  of  the  statute.  The  papers  which  were  before 
the  Court  in  the  cases  principally  relied  upon  by  defend- 
ant conformed  to  the  foregoing  definition,  and  in  each 
case  the  decision  turned  upon  the  fact  that  the  lost 
receipts  were  payable  to  '  order, '  which  circumstance  was 
held  to  render  them  negotiable  instruments,  and  to 
require  that  indemnity  be  given  before  judgment  upon 
them  could  be  rendered.  Frank  v.  Wessels,  64  N.  Y.  155 ; 
Read  v.  Bank,  136  N.  Y.  454,  32  N.  E.  1083,  32  Am.  St. 
Rep.  758.  The  receipt  or  certificate  in  the  present  case 
is  not  negotiable.  The  money  represented  by  it  is  pay- 
able, not  'to  order  or  bearer/  but  to  the  plaintiff  'or  her 
assigns.'  It  is  therefore  what  is  known  to  the  law  as  a 
'non-negotiable  instrument.'  In  an  action  upon  a  lost  or 
destroyed  instrument  of  this  description,  it  is  not  neces- 
sary that  the  plaintiff  should  give  or  tender  indemnity." 

Question  431:  (1.)  Why  was  it  material  in  this  case  to 
consider  whether  this  instrument  was  negotiable  ?  What  was  its 
alleged  defect  as  a  negotiable  instrument?  What  did  the  court 
decide  ? 

(2.)  Why  should  the  law  provide  that  the  holder  of  nego- 
tiable paper  should  give  bond  in  case  of  loss  thereof,  and  not 
the  holder  of  non-negotiable  paper? 

Sec.  307.    When  Instrument  Payable  to  Bearer. 

Case  No.  432.  Uniform  Negotiable  Instruments  Act, 
Sec.  9. 


648  NEGOTIABLE  PAPER 

1 '  The  instrument  is  payable  to  bearer : 
' 1 1.  When  it  is  expressed  to  be  so  payable ;  or 
"2.  When  it  is  payable  to  a  person  named  therein  or 
bearer ;  or 

"3.  When  it  is  payable  to  the  order  of  a  fictitious  or 
non-existing  person,  and  such  fact  was  known  to  the  per- 
son making  it  so  payable ;  or 

"4.  When  the  name  of  the  payee  does  not  purport  to  be 
the  name  of  any  person ;  or 

"5.  When  the  only  or  last  endorsement  is  an  endorse- 
ment in  blank. ' ' 

Question  432:    When  is  an  instrument  payable  to  bearer? 

Case  No.  433.    Willetts  v.  Phoenix  Bank,  2  Duer,  121. 
Facts:    Suit  on  four  checks,  one  being  "to  the  order  of 
1658,"  and  three  to  the  order  of  "bills  payable." 

Oakley,  C.J. :  "*  *  #  The  law  is  well  settled  that 
a  draft  payable  to  the  order  of  a  fictitious  person,  inas- 
much as  title  cannot  be  given  by  indorsement,  is  in  judg- 
ment of  law  payable  to  bearer.     *     *     *  " 

Question  433:  How  were  these  cheeks  payable?  Were  they 
negotiable  ?    Why  ? 

Case  No.  434.     Bartlett  v.  First  Nat.  Bank,  247  111.  490. 

Facts:  This  was  a  suit  commenced  by  Bartlett,  Frazier 
&  Carrington  against  the  First  National  Bank  of  Chicago, 
to  recover  the  amount  of  135  drafts  drawn  by  B.  F.  &  C. 
by  their  agent,  R.  L.  Walsh,  upon  themselves,  to  the  order 
of  various  persons,  and  fraudulently  indorsed  by  said 
Walsh  in  the  names  of  the  payees  and  paid  to  Walsh  by 
State  Bank  of  Reddick  and  to  said  bank  by  First  National 
Bank  of  Chicago,  and  to  First  National  Bank  of  Chicago 
by  B.  F.  &  C,  plaintiffs  herein. 

Point  Involved:  Whether  an  instrument  drawn  to  the 
order  of  a  payee  by  a  name  which  represents  an  actual 
person,  but  who  was  not  intended  to  have  and  never  had 


WORDS  OF  NEGOTIABILITY  649 

any  interest  in  said  instrument,  is  payable  to  a  fictitious 
person  and  therefore  payable  to  bearer. 

Mr.  Justice  Hand:  "•  *  *  It  appears  from  the 
record  that  Bartlett,  Frazier  &  Carrington  were  engaged 
in  the  buying  of  grain  in  the  city  of  Chicago,  and  at 
numerous  places  in  the  country;  that  in  1904  they  were 
running  an  elevator  at  Reddick;  that  R.  L.  Walsh  was 
the  manager  of  the  Reddick  elevator;  that  he  bought 
grain  from  the  farmers  residing  in  that  vicinity  and  paid 
them  for  their  grain  by  delivering  to  them  drafts  drawn 
upon  blanks  in  the  following  form,  which  were  furnished 
R.  L.  Walsh  by  Bartlett,  Frazier  &  Carrington : 

'No Bartlett,  Frazier  &  Carrington.       $ 

Pay  to  the  order  of 

Dollars  for bushels  and lbs.  of 

Bartlett,  Frazier  &  Carrington, 

By ,  Agent. 

To  Bartlett,  Frazier  &  Carrington,  Chicago,  Illinois. ' 

"The  blanks  were  filled  up  by  R.  L.  Walsh  with  the 
farmers'  names,  the  amount  due  them  for  grain  and  the 
kind  of  grain  purchased.  The  drafts  were  cashed  by 
the  State  Bank  of  Reddick,  and  by  that  bank  forwarded  to 
the  First  National  Bank  of  Chicago,  and  by  that  bank  col- 
lected of  Bartlett,  Frazier  &  Carrington.  In  the  year 
1905,  to  accommodate  the  farmers  and  to  meet  competi- 
tion, R.  L.  Walsh  would  fill  out  the  drafts,  as  above  indi- 
cated, for  grain  and  pay  the  farmers  for  their  grain  in 
cash,  and  then,  without  authority,  endorse  the  drafts 
with  the  farmers'  names  and  obtain  the  amounts  of  the 
drafts  from  Bartlett,  Frazier  &  Carrington  by  putting 
the  drafts  through  the  banks.     *     *     * 

"In  November,  1906,  it  was  discovered  by  the  appel- 
lants that  R.  L.  Walsh,  by  means  of  issuing  drafts  with- 
out receiving  any  grain  therefor  and  endorsing  them  in 
the  names  of  the  payees  and  procuring  the  cash  thereon 
from  the  State  Bank  of  Reddick  and  passing  them  through 


650  NEGOTIABLE  PAPER 

< 

the  First  National  Bank  of  Chicago,  had  obtained  some 
$12,500  in  cash,  which  he  converted  to  his  own  use. 

"The  appellants  base  their  claim  of  liability  against 
the  First  National  Bank  of  Chicago  upon  the  contention 
that  the  drafts  by  R.  L.  Walsh  were  forgeries.  * 
It  is  undoubtedly  the  general  rule  that  when  a  drawee 
pays  a  draft  to  an  endorser  who  derives  title  to  the  draft 
through  a  prior  forged  endorsement  he  may  recover  back 
the  money  so  paid.  (First  Nat.  Bank  v.  Northwestern 
Nat.  Bank,  152  111.  296.)     *     *     * 

"The  drafts  drawn  by  R.  L.  Walsh  in  the  name  of  the 
appellants  against  themselves  were  all  made  payable  to 
some  person  who  resided  near  Reddick,  or  bearer,  and  in 
the  sense  that  there  were  such  individuals  as  payees  the 
payees  named  in  the  drafts  were  not  fictitious  persons. 
At  the  time,  however,  Walsh  drew  said  drafts  he  did  not 
intend  that  the  persons  whose  names  he  inserted  as  payees 
in  said  drafts  should  have  any  interest  in  said  drafts,  or 
that  said  drafts  should  ever  be  delivered  to  said  payees, 
or  that  said  payees  should  endorse  said  drafts  in  order 
to  receive  payment  therefor  or  for  the  purpose  of  nego- 
tiating the  same.  In  the  eye  of  the  laAV,  therefore,  the 
payees  named  in  said  drafts  were  not  bona  fide  payees 
but  mere  fictitious  persons.  Said  drafts  were  therefore, 
in  law,  payable  to  bearer,  and  were  transferable,  there- 
fore, by  delivery,  and  upon  their  receipt  by  the  appellee 
payment  thereof  could  be  enforced  against  the  appellants 
by  the  First  National  Bank  of  Chicago  without  claiming 
through  the  said  forged  endorsements  but  as  the  holders 
of  negotiable  paper  made  payable  to  bearer.  *  *  * 
The  First  National  Bank  did  not,  therefore,  make  out  its 
title  to  said  drafts  through  a  forged  endorsement,  and, 
appellants  could  not,  therefore,  recover  back  the  money 
paid  to  the  bank  on  said  drafts.     *    *     * ' ' 

Question  434:  Why  were  the  instruments  in  question  held  to 
be  payable  to  bearer? 


CHAPTER    FIFTY-SIX 

SUNDRY  PROVISIONS  AND  OMISSIONS  NOT 
AFFECTING  NEGOTIABILITY 

§  308.  In  general.  §  312.  Seal,  omission  of  date,  ante 

§  309.  Provision  authorizing  sale  of  dating,  post  dating,  etc. 

collateral  security.  §  313.  Rules  of  construction. 

§  310.  Confession  of  judgment  clause. 

§  311.  Waiver  of  benefit  of  exemp- 
tion laws. 

• 

Sec.  308.    In  General. 

Case  No.  435.  Uniform  Negotiable  Instruments  Act, 
Sec.  5. 

"An  instrument  which  contains  an  order  or  promise 
to  do  an  act  in  addition  to  the  payment  of  money  is  not 
negotiable. 

"But  the  negotiable  character  of  an  instrument  other- 
wise negotiable  is  not  affected  by  a  provision  which : 

"1.  Authorizes  the  sale  of  collateral  securities  in  case 
the  instrument  be  not  paid  at  maturity ;  or 

"2.  Authorizes  a  confession  of  judgment;  or 

"3.  Waives  the  benefit  of  any  law  intended  for  the 
advantage  or  protection  of  the  obligator ;  or 

"4.  Gives  the  holder  an  election  to  require  something 
to  be  done  in  lieu  of  payment  of  money. 

"But  nothing  in  this  section  shall  validate  any  pro- 
vision or  stipulation  otherwise  illegal." 

Question  435:     (See  the  following  cases  and  questions.) 

651 


652  NEGOTIABLE  PAPER 

Sec.  309.    Provision  for  Sale  of  Collateral  Security. 

Case  No.  436.     Perry  v.  Bigelow,  128  Mass.  129. 
Facts:     Contract  on  the  following  promissory  note 
signed  by  the  defendant  and  endorsed  by  payee : 

< '  $5,000.  St.  Louis,  Mo.,  January  11, 1877. 

"Four  months  after  date  I  promise  to  pay  to  Frank  F. 
Iglehart,  cashier,  or  order,  at  the  banking  house  of  Bar- 
tholew,  Lewis  &  Co.,  in  St.  Louis,  Mo.,  five  thousand  dol- 
lars, for  value  received,  negotiable  and  payable  without 
defalcation  or  discount,  and  with  interest  from  maturity 
at  the  rate  of  ten  per  cent,  per  annum,  I  having  deposited 
with  him  as  collateral  security  the  following  described  cer- 
tificates of  the  capital  stock  of  the  Scotia  Lead  Mining 
Company,  No.  40  for  25  shares ;  41  for  25  shares,  42  for 
25  shares;  43  for  50  shares;  44  for  130  shares,  and  39  for 
25  shares,  aggregating  280  shares.  And  hereby  authorize 
him  to  sell  the  same  at  public  or  private  sale  or  otherwise 
at  his  option,  on  the  non-performance  of  this  promise, 
without  notice,  and  authorize  him  to  use,  transfer  or  hy- 
pothecate, the  same  at  his  option,  he  being  required,  on 
payment  of  the  amount  loaned  as  specified  herein,  and 
at  any  time  before  said  collateral  security  shall  have  been 
sold,  or  surrender  the  same." 

(Remainder  of  facts  omitted.) 

Ames,  J. :  "  The  defendant 's  written  contract  was  a  ne- 
gotiable promissory  note,  requiring  him  to  pay  a  certain 
sum  of  money  at  a  definite  time. 

Question  436:    What  does  this  case  decide? 

Sec.  310.    Confession  of  Judgment  Clause. 

Case  No.  437.  Wisconsin  Yearly  Meeting  of  Freewill 
Baptists  v.  Babler,  115  Wis.  289. 

Facts:  This  was  an  action  in  equity,  brought  by  re- 
spondent, a  corporation,  to  set  aside  the  sale  and  transfer 
to  the  appellant  of  a  certain  promissory  note  and  mort- 
gage, which  was  the  property  of  the  respondent  and  to 


JUDGMENT  NOTES  653 

recover  the  possession  of  the  same.  The  note  contained 
a  power  of  attorney  which  authorized  a  confession  of 
judgment  at  any  time  thereafter,  whether  due  or  not. 

Point  Involved:  Whether  a  power  of  attorney  to  con- 
fess judgment  at  any  time  on  the  note  whether  due  or  not, 

renders  the  note  non-negotiable. 
i 

Winslow,  J. :  * '  It  is  entirely  clear  from  the  evidence  in 
the  case  and  from  the  findings  of  fact  that  the  note  and 
mortgage  were  the  property  of  the  plaintiff  corporation, 
and  that  no  express  authority  had  ever  been  given  to 
Sears  to  sell  them.  Those  being  the  facts,  the  defendant, 
Babler,  could  acquire  no  title  to  the  note  by  this  trans- 
action with  Sears  unless  the  note  was  negotiable  paper, 
or  unless  Sears  had  either  the  apparent  ownership  or 
apparent  authority  to  sell  it,  so  that  the  corporation 
would  be  estopped  to  deny  the  act.  It  is  quite  certain 
the  note  was  not  negotiable,  because  by  the  power  of  at- 
torney it  contained  judgment  could  be  entered  upon  it  at 
any  time  after  its  date,  whether  due  or  not.  Thus  the 
time  of  payment  depends  upon  the  whim  or  caprice  of  the 
holder,  and  is  absolutely  uncertain.  This  deprives  the 
note  of  its  negotiability.  *  *  *  Ch.  356,  Laws  of  1879 
(the  negotiable  instruments  law)  provides  that  the  nego- 
tiable character  of  an  instrument  is  not  affected  by  a 
provision  authorizing  a  confession  of  judgment  if  the 
instrument  is  not  paid  at  maturity.  Sec.  1675 — 5,  subd.  2. 
Upon  familiar  principles  of  statutory  construction  this 

provision  makes  a  note  like  the  present  non-negotiable. 

#     #     #  )> 

Question  437:  What  is  a  judgment  note?  Does  it  necessarily 
make  a  note  non-negotiable  ?  What  was  the  holding  in  this  case  ? 
When  will  a  confession  of  judgment  clause  have  no  effect  on 
negotiability  ? 

Sec.  311.    Waiver  of  Benefit  of  Exemption  Laws. 

Case  No.  438.     Zimmerman  v.  Anderson,  67  Pa.  421. 
Facts :    Suit  on  following  note :  s 


654  NEGOTIABLE  PAPER 

1 '  $125.00.  Town-  of  Buffalo,  March  25th,  1868. 

"Six  months  after  date  I  promise  to  pay  to  G.  W. 
Lowe,  or  order,  one  hundred  and  twenty-five  dollars  for 
value  received,  with  interest,  waiving  the  right  of  appeal 
and  of  all  valuation,  appraisement,  stay  and  exemption 
laws.  Moses  Anderson." 

It  was  contended  the  note  was  not  negotiable. 

Point  Involved:  Whether  a  waiver  in  an  instrument 
of  benefit  of  exemption  and  similar  laws,  renders  the 
note  non-negotiable. 

Read,  J.:  "*  *  *  But  it  is  urged  that  the  words 
'waiving  the  right  of  appeal,  and  of  all  valuation,  ap- 
praisements, stay  and  exemption  laws*  destroy  its  nego- 
tiability. In  what  way?  They  do  not  contain  any  con- 
dition or  contingency  but  after  the  note  falls  due  and  is 
unpaid,  and  the  maker  is  sued,  facilitate  the  collection 
by  waiving  certain  rights  which  he  might  exercise  to 
delay  or  impede  it.  Instead  of  clogging  its  negotiability 
it  adds  to  it,  and  gives  additional  value  to  the  note. 


Question  438:    What  did  the  court  decide  in  this  case  ? 

(Note:  Whether  the  waiver  of  the  exemption  law  is  valid 
is  another  question.  Whether  valid  or  not,  it  does  not  destroy 
negotiability.  In  some  states  certain  exemption  laws  intended 
to  prevent  the  debtor  from  becoming  a  charge  on  the  state  can- 
not be  waived  by  the  debtor,  especially  exemption  in  wages  in- 
tended not  only  for  the  debtor's  benefit  but  also  the  benefit 
of  his  family. ) 

Sec.  312.    Seal,  Omission  of  Date,  Ante-Dating,  Post- 
Dating,  etc. 

Case  No.  439.  Uniform  Negotiable  Instruments  Act, 
Sec.  6,  10-13. 

"Sec.  6.  The  validity  and  negotiable  character  of  an 
instrument  are  not  affected  by  the  fact  that : 


OMISSIONS,  ETC.  655 

"1.  It  is  not  dated;  or 

"2.  Does  not  specify  the  value  given,  or  that  any  value 
has  been  given  therefor ;  <?r 

"3.  Does  not  specify  the  place  where  it  is  drawn  or  the 
place  where  it  is  payable ;  or 

"4.  Bears  a  seal;  or 

"5.  Designates  a  particular  kind  of  current  money  in 
which  payment  is  to  be  made. 

"But  nothing  in  this  section  shall  alter  or  repeal  any 
statute  requiring  in  certain  cases  the  nature  of  the  con- 
sideration to  be  stated  in  the  instrument. 

' '  Sec.  10.  The  instrument  need  not  follow  the  language 
of  this  Act,  but  any  terms  are  sufficient  which  clearly  indi- 
cate an  intention  to  conform  to  the  requirements  hereof. 

"Sec.  11.  When  the  instrument  or  an  acceptance  or 
any  indorsement  thereon  is  dated,  such  date  is  deemed 
prima  facie  to  be  the  true  date  of  the  making,  drawing, 
acceptance  or  indorsement,  as  the  case  may  be. 

"Sec.  12.  The  instrument  is  not  invalid  for  the  reason 
only  that  it  is  ante-dated  or  post-dated,  provided  this  is 
not  done  for  an  illegal  or  fraudulent  purpose.  The  per- 
son to  whom  an  instrument  so  dated  is  delivered  acquires 
the  title  thereto  as  of  date  of  delivery. 

"Sec.  13.  When  an  instrument  expressed  to  be  pay- 
able at  a  fixed  period  after  date  is  issued  undated,  or 
where  the  acceptance  of  an  instrument  payable  at  a  fixed 
period  after  sight  is  undated,  any  holder  may  insert 
therein  the  true  date  of  issue  or  acceptance,  and  the  in- 
strument shall  be  payable  accordingly.  The  insertion  of 
a  wrong  date  does  not  avoid  the  instrument  in  the  hands 
of  a  subsequent  holder  in  due  course,  but  as  to  him,  the 
date  so  inserted  is  to  be  regarded  as  the  true  date. ' ' 

Question  439:     (1.)     If  an  instrument  is  otherwise  properly 
drawn,  is  it  negotiable,  if  it 
(a.)     Is  not  dated? 
(b.)     Does  not  state  the  value  or  recite  the  words 

"value  received"? 
(c. )     Does  not  specify  place  of  drawing  or  of  payment  ? 
(d.)    Bears  a  seal? 
(e.)     Specifies  the  kind  of  money  in  which  payable? 


656  NEGOTIABLE  PAPER 

(2.)  Is  an  instrument  invalid  because  post-dated  or  ante- 
dated? 

Sec.  313.    Rules  of  Construction. 

Case  No.  440.  Uniform  Negotiable  Instruments  Act, 
Sec.  17. 

"Where  the  language  of  the  instrument  is  ambiguous, 
or  there  are  omissions  therein  the  following  rules  of  con- 
struction apply: 

"1.  Where  the  sum  payable  is  expressed  in  words  and 
also  in  figures  and  there  is  a  discrepancy  between  the  two, 
the  sum  denoted  by  the  words  is  the  sum  payable ;  but  if 
the  words  are  ambiguous  or  uncertain,  reference  may  be 
had  to  the  figures  to  fix  the  amount. 

"2.  Where  the  instrument  provides  for  the  payment  of 
interest,  without  specifying  the  date  from  which  interest 
is  to  run,  the  interest  runs  from  the  date  of  the  instru- 
ment, and  if  the  instrument  is  undated,  from  the  issue 
thereof. 

"3.  Where  the  instrument  is  not  dated,  it  will  be  con- 
sidered to  be  dated  as  of  the  time  it  was  issued. 

"4.  Where  there  is  conflict  between  the  written  and 
printed  provisions  of  the  instrument,  the  written  pro- 
visions prevail. 

"5.  Where  the  instrument  is  so  ambiguous  that  there  is 
doubt  whether  it  is  a  bill  or  a  note,  the  holder  may  treat 
it  as  either,  at  his  election. 

"6.  Where  a  signature  is  so  placed  upon  the  instru- 
ment that  it  is  not  clear  in  what  capacity  the  person 
making  the  same  intended  to  sign,  he  is  to  be  deemed  an 
indorser. 

"7.  Where  an  instrument  containing  the  words  'I 
promise  to  pay*  is  signed  by  two  or  more  persons,  they 
are  deemed  to  be  jointly  and  severally  liable  thereon." 

Question  440 :    Recite  the  7  rules  of  construction  here  set  out. 


CHAPTER    FIFTY-SEVEN 
EXECUTION,  DELIVERY  AND  CONSIDERATION 

§314.  Delivery  essential  to  validity;       §316.  Form  of  signature;  execution 

presumed  when.  by  agent. 

§  315.  Execution  in  blank.  §  317.  Consideration  in  execution. 

Sec.    314.    Delivery   Essential   to    Validity — Presumed 

When. 

Case  No.  441.  Uniform  Negotiable  Instruments  Act, 
Sees.  15, 16. 

[Sec.  15.]  "  Where  an  incomplete  instrument  has  not 
been  delivered  it  will  not,  if  completed  and  negotiated, 
without  authority,  be  a  valid  contract  in  the  hands  of  any 
holder,  as  against  any  person  whose  signature  was  placed 
thereon  before  delivery." 

[  Sec.  16.  ]  "  Every  contract  on  a  negotiable  instrument 
is  incomplete  and  revocable  until  delivery  of  the  instru- 
ment for  the  purpose  of  giving  effect  thereto.  As  between 
immediate  parties,  and  as  regards  a  remote  party  other 
than  a  holder  in  due  course,  the  delivery,  in  order  to  be 
effectual,  must  be  made  either  by  or  under  the  authority 
of  the  party  making,  drawing,  accepting  or  indorsing,  as 
the  case  may  be;  and  in  such  case  the  delivery  may  be 
shown  to  have  been  conditional  or  for  a  special  purpose 
only,  and  not  for  the  purpose  of  transferring  the  property 
in  instrument.  But  where  the  instrument  is  in  the  hands 
of  a  holder  in  due  course,  a  valid  delivery  thereof  by  all 
parties  prior  to  him  so  as  to  make  them  liable  to  him,  is 
conclusively  presumed.  And  where  the  instrument  is  no 
longer  in  the  possession  of  party  whose  signature  appears 

657 


658  NEGOTIABLE  PAPER 

thereon,  a  valid  and  intentional  delivery  by  him  ia  pre- 
sumed until  the  contrary  is  proved." 

Question  441 :  What  is  ' '  delivery ' '  of  an  instrument  ?  When 
will  delivery  be  effectual  as  between  immediate  parties?  When 
will  delivery  be  conclusively  presumed  notwithstanding  it  may 
have  been  wanting  ? 

Case  No.  442.    Mass.  Nat.  Bank  v.  Snow,  187  Mass,  159. 

Facts:  Suit  against  Snow  as  endorser  of  three  promis- 
sory notes  signed  H.  G.  and  H.  W.  Stevens,  payable  to  the 
order  of  Snow,  endorsed  by  Snow  in  blank  and  discounted 
before  maturity  by  the  Mass.  Nat.  Bk.,  the  plaintiff.  The 
notes  were  the  notes  of  one  H.  W.  Stevens,  who  carried 
on  business  as  H.  G.  &  H.  W.  Stevens.  Snow  introduced 
evidence  to  show  that  after  the  notes  were  made,  Stevens, 
the  maker,  took  them  from  his  possession/without  Snow 's 
knowledge  or  consent  and  sold  them  to  the  plaintiff. 

Point  Involved:  Whether  a  party  whose  signature  ap- 
pears on  an  instrument  negotiable  in  form  and  so  made 
or  endorsed  as  to  pass  by  delivery,  may  be  held  liable  on 
such  instrument  by  an  innocent  holder  for  value  and  be- 
fore maturity  who  acquired  his  title  from  a  thief  or  other 
party  lacking  authority  to  deliver  it. 

Knowltoet,  C.  J.:  "This  is  an  action  of  contract  on 
three  promissory  notes,  signed  H.  G.  and  H.  W.  Stevens, 
payable  to  the  order  of  the  defendant,  indorsed  by  him 
in  blank  and  discounted  by  the  plaintiff.  They  severally 
bear  date  December  9,  1899,  and  the  rights  of  the  parties 
are  accordingly  governed  by  the  St.  1898,  c.  533,  some- 
times called  the  negotiable  instruments  act,  which  is  now 

embodied  in  E.  L.  c.  73,  Sections  18  to  212,  inclusive. 

a*     *     * 

"The  notes  being  indorsed  in  blank,  were  payable  to 
bearer  within  the  meaning  of  the  statute.  R.  L.  c.  73,  Sec. 
26,  cl.  5.  When  the  notes  were  taken  to  the  plaintiff  for 
discount  Stevens  was  the  bearer.  R.  L.  c.  73,  Sec.  207. 
The  presentation  of  such  notes  for  discount  raised  a  pre- 


EXECUTION  IN  BLANK  659 

sumption  of  fact  that  the  bearer  was  the  owner  of  them. 
Potte  v.  Prout,  3  Gray  502.     *     *     * 

"The  defendant's  contention  that  after  the  notes  had 
been  delivered  to  the  defendant  and  endorsed  by  him  they 
were  stolen  by  Stevens,  brings  us  to  the  question  whether, 
under  the  negotiable  instruments  act,  a  holder  in  due 
course  of  a  note  payable  to  bearer,  that  has  been  stolen, 
can  acquire  a  good  title  from  the  thief.  Even  before  the 
enactment  of  the  statute,  while  the  decisions  were  not  uni- 
form, the  weight  of  authority  was  in  favor  of  an  affirma- 
tive answer  to  the  question.     *     *     *  ( 

"The  following  specific  language  of  the  statute  touch- 
ing this  question,  as  well  as  its  provisions  in  other  sec- 
tions, was  intended  to  establish  the  law  in  favor  of  holders 
in  due  course.  'But  where  the  instrument  is  in  the  hands 
of  a  holder  in  due  course  a  valid  delivery  thereof  by  all 
parties  prior  to  him  so  as  to  make  them  liable  to  him  is 
conclusively  presumed.'  R.  L.  c.  73,  Sec.  33.  This  con- 
clusive presumption  exists  as  well  when  the  note  is  taken 
from  a  thief  as  in  any  other  case.  Of  course  this  rule  does 
not  apply  to  an  instrument  which  is  incomplete.  But  in 
reference  to  a  complete,  negotiable  promissory  note  pay- 
able to  bearer,  it  is  a  wholesome  and  salutary  provision. 
#     *     *n 

Question  442:  (1.)  What  are  the  facts  in  the  above  case 
and  what  do  they  decide  ? 

(2.)  S  sued  C  on  a  promissory  note  made  by  C  payable  to 
F  and  by  F  endorsed  to  S.  S  gave  value,  purchased  the  note 
before  it  was  overdue  and  had  no  notice  of  any  defense  or 
irregularity.  C  defends  that  he  wrote  and  signed  the  note 
merely  as  a  matter  of  amusement,  with  no  intent  to  deliver  it  to 
F  and  that  F  stole  it.  Is  C  's  defense  good  as  against  S  ?  (Shipley 
v.  Carroll,  45  IU.  285.) 

Sec.  315.    Execution  in  Blank. 

Case  No.  443.  Uniform  Negotiable  Instruments  Act, 
Sec.  14.    (See  also  cases  485  and  486.) 

"Where  the  instrument  is  wanting  in  any  material  par- 
ticular, the  person  in  possession  thereof  has  a  prima  facie 


660  NEGOTIABLE  PAPER 

authority  to  complete  it  by  filling  up  the  blanks  therein. 
And  a  signature  on  a  blank  paper  delivered  by  the  person 
making  the  signature  in  order  that  the  paper  may  be  con- 
verted into  a  negotiable  instrument  operates  as  a  prima 
facie  authority  to  fill  it  up  as  such  for  any  amount.  In 
order,  however,  that  any  such  instrument  when  completed 
may  be  enforced  against  any  person  who  became  a  party 
thereto  prior  to  its  completion,  it  must  be  filled  up  strictly 
in  accordance  with  the  authority  given  and  within  a  rea- 
sonable time.  But  if  any  such  instrument,  after  comple- 
tion, is  issued  or  negotiated  to  a  holder  in  due  course  it  is 
valid  and  effectual  for  all  purposes  in  his  hands,  and  he 
may  enforce  it  as  if  it  had  been  filled  up  strictly  in  accord- 
ance with  the  authority  given  and  within  a  reasonable 
time." 

Question  443:     State  the  rule  of  this  section. 

Case  No.  444.  Melton  v.  Pensacola  Bank  &  Trust  Co., 
190  Fed.  126. 

Sanford,  D.  J. :  '  *  The  fact  that  the  name  of  the  payee 
was  blank  at  the  time  the  note  was  signed  by  the  defend- 
ants and  delivered  to  Scudamore  does  not  impeach  its 
validity  in  the  hands  of  the  plaintiff.  An  implied  author- 
ity was  thereby  given  to  Scudamore  to  fill  in  the  name  of 
the  payee,  and  even  if  he  filled  it  in  with  the  wrong  name, 
in  violation  of  his  agreement  with  the  defendants  (as  to 
which  there  is  no  evidence  in  the  record)  this  would  not 
affect  the  title  of  the  plaintiff,  taking  the  note  as  holder 
for  value  before  maturity  and  without  notice.  See  by 
analogy,  in  the  case  of  filling  in  a  blank  date,  Goodman  v. 
Simonds,  supra,  20  How.  at  page  36.1,  50  L.  Ed.  934,  and 
Ajidroscoggin  Bank  v.  Kimball,  10  Cush.  (Mass.)  373,  and 
other  cases  there  cited  as  to  the  general  authority  given  to 
fill  up  blanks,  by  signing  and  delivering  to  an  agent  of  an 
instrument  in  which  blanks  are  left." 

Question  444:  What  was  the  alleged  defect  in  the  above 
note?    How  did  the  court  dispose  of  it. 


EXECUTION  IN  BLANK  661 

Case  No.  445.  Louis  M.  Greeley,  "The  New  Illinois 
Negotiable  Instruments  Act,"  Illinois  Law  Review,  Vol. 

2,  p.  145. 

n*     *     * 

* '  Section  14.  This  section  changes  the  law  as  generally 
laid  down  in  American  cases,  and  conforms  to  the  law  as 
originally  established  by  the  English  cases  and  now  em- 
bodied in  the  English  Bills  of  Exchange  Act  (from  which 
the  Uniform  Negotiable  Instruments  Law  was  largely  de- 
rived ) .  The  principle  involved  can  be  most  quickly  shown 
by  an  example.  The  maker  of  a  note  payable  to  A  which 
is  blank  as  to  the  amount,  gives  it  to  A  with  instructions  to 
fill  in  and  negotiate  it  for  an  amount  not  exceeding  $100. 
A  takes  the  note  to  B  in  its  incomplete  state  and  offers  to 
fill  it  in  for  $500  if  B  will  purchase  it  for  that  amount.  B 
agrees.  A  fills  in  the  note  for  $500  and  indorses  it  to 
B  who  pays  the  $500  to  A.  B  has  no  notice  of  the  maker's 
instructions  to  A.  A  absconds.  According  to  most  Amer- 
ican cases  B  would  be  protected.  It  is  held  that  A,  having 
lawful  possession  of  the  blank  note,  has  ostensible  author- 
ity to  fill  in  the  blank  for  any  amount  (in  reason),  and  that 
a  purchaser  may  rely  upon  this  ostensible  authority, 
where  he  has  no  actual  notice  that  the  authority  has  been 
exceeded.  Huntington  v.  Branch  Bank,  3  Ala.  186 ;  Bank 
of  Commonwealth  v.  Curry,  2  Dana,  142;  Fullerton  v. 
Sturges,  4  Ohio  St.  529;  Page  v.  Moerell,  3  Keyes,  117, 
and  see  City  of  Chicago  v.  Gage,  95  111.  593.  According 
to  the  English  cases,  B,  under  the  circumstances  sup- 
posed, having  actual  knowledge  that  the  instrument  was 
issued  blank  as  to  the  amount,  would  not  be  protected. 
He  would  be  deemed  to  take  at  his  peril  as  to  the  extent 
of  A's  actual  authority.  Awde  v.  Dixon,  6  Exch.  869; 
Hatch  v.  Searles,  2  Sm.  &  Gif.  147;  Hogarth  v.  Latham, 
3  Q.  B.  D.  643.  As  above  stated  the  English  rule  is  the 
one  adopted  in  Section  14  of  our  new  Act. 

"Both  English  and  American  cases  are  agreed  that  if 
the  note,  in  the  case  above  supposed,  had  been  filled  in 
before  B  took  it,  and  B  had  no  notice  it  was  issued  in 
blank,  B  would  be  protected.    Merritt  v.  Boyden,  191  HI. 


662  NEGOTIABLE  PAPER 

136 ;  Young  v.  Ward,  21  111.  223.    This  principle  also  finds 
expression  in  Section  14." 

Question  445:  Give  the  illustration  here  made  by  Professor 
Greeley  and  state  his  solution  of  the  question  thereby  presented. 

Sec.  316.    Form  of  Signature — Execution  by  Agent. 

(See  cases  No.  198  and  199.) 

Case  No.  446.    Uniform  Sales  Act,  Sees.  18-23. 

' '(Sec.  18.)  No  person  is  liable  on  the  instrument 
whose  signature  does  not  appear  thereon,  except  as  herein 
otherwise  expressly  provided.  But  one  who  signs  in  a 
trade  or  assumed  name  will  be  liable  to  the  same  extent 
as  if  he  had  signed  his  own  name. 

"  (Sec.  19.)  The  signature  of  any  party  may  be  made 
by  a  duly  authorized  agent.  No  particular  form  of  ap- 
pointment is  necessary  for  this  purpose;  and  the  au- 
thority of  the  agent  may  be  established  as  in  other  cases 
of  agency. 

"  (Sec.  20.)  Where  the  instrument  contains,  or  a  per- 
son adds  to  his  signature,  words  indicating  that  he  signs 
for  or  on  behalf  on  the  principal,  or  in  a  representative 
capacity,  he  is  not  liable  on  the  instrument  if  he  was  duly 
authorized;  but  the  mere  addition  of  words  describing 
him  as  agent,  or  as  filling  a  representative  character,  with- 
out disclosing  his  principal,  does  not  exempt  him  from 
personal  liability. 

"  (Sec.  21.)  A  signature  by  'procuration*  operates  as 
notice  that  the  agent  has  but  limited  authority  to  sign, 
and  the  principal  is  bound  in  case  the  agent  in  so  signing 
acted  within  the  actual  limits  of  his  authority. 

"  (Sec.  22.)  The  indorsement  or  assignment  of  the  in- 
strument by  a  corporation  or  by  an  infant  passes  the 
property  therein,  notwithstanding  that  from  want  of  ca- 
pacity the  corporation  or  infant  may  incur  no  liability 
thereon. 

' '  ( Sec.  23.)  Where  a  signature  is  forged  or  made  with- 
out authority  it  is  wholly  inoperative,  and  no  right  to 
retain  the  instrument  or  to  give  a  discharge  therefor  or 


CONSIDERATION  663 

to  enforce  payment  thereof  against  any  party  thereto, 
can  be  acquired  through  or  under  such  signature,  unless 
the  party  against  whom  it  is  sought  to  enforce  such  right 
is  precluded  from  setting  up  the  forgery  or  want  of  au- 
thority.' ' 

Question  446:  (1.)  A  and  B  compose  the  "Northwestern 
Shoe  Emporium,"  a  partnership,  and  make  and  sign  a  note 
which  states  that  the  "Northwestern  Shoe  Emporium  promises 
to  pay,"  etc.,  and  is  signed  "Northwestern  Shoe  Emporium,  by 
A. "  A  and  B  are  sued.  B  defends  that  his  name  is  not  on  the 
note.  Are  either  or  both  liable  (assuming  that  A  had  authority 
to  sign  for  B)  ?  (If  the  Northwestern  Shoe  Emporium  had  been 
a  corporation  and  A  and  B  stockholders  could  A  and  B  be  sued 
personally  on  the  note?) 

(2.)     What  is  the  effect  of  a  signature  "by  procuration"? 

Sec.  317.    Consideration  in  Execution. 

Case  No.  447.  Uniform  Negotiable  Instruments  Act, 
Sees.  24-29. 

"(Sec.  24.)  Every  negotiable  instrument  is  deemed 
prima  facie  to  have  been  issued  for  a  valuable  considera- 
tion, and  every  person  whose  signature  appears  thereon 
to  have  become  a  party  thereto  for  value. 

"(Sec.  25.)  Value  is  any  consideration  sufficient  to 
support  a  simple  contract. 

"2.  An  antecedent  or  pre-existing  debt  constitutes 
value  and  is  deemed  such,  whether  the  instrument  is  pay- 
able on  demand  or  at  a  future  time. 

"(Sec.  26.)  Where  value  has  at  any  time  been  given 
for  the  instrument,  the  holder  is  deemed  a  holder  for 
value  in  respect  to  all  parties  who  became  such  prior  to 
that  time. 

"(Sec.  27.)  Whether  the  holder  has  a  lien  on  the 
instrument,  arising  either  from  contract  or  by  implica- 
tion of  law,  he  is  deemed  a  holder  for  value  to  the  extent 
of  his  lien. 

"(Sec.  28.)  Absence  or  failure  of  consideration  is  a 
matter  of  defense  as  against  any  person  not  a  holder  in 


664  NEGOTIABLE  PAPER 

due  course,  and  partial  failure  of  consideration  is  a  de- 
fense pro  tanto,  whether  the  failure  is  an  ascertained  and 
liquidated  amount  or  otherwise. 

"  (Sec.  29.)  An  accommodation  party  is  one  who  has 
signed  the  instrument  as  maker,  drawer,  acceptor,  or  in- 
dorser,  for  the  purpose  of  lending  his  name  to  some  other 
person.  Such  a  person  is  liable  on  the  instrument  to  a 
holder  for  value,  notwithstanding  such  holder  at  the  time 
of  taking  the  instrument  knew  him  to  be  only  an  accom- 
modation party." 

Question  447:  (1.)  A  sues  B  on  a  negotiable  promissory 
note  for  $1,000  given  by  B  to  A's  order.  He  presents  in  evi- 
dence the  note,  proves  its  execution  and  delivery  by  B,  and  then 
rests  his  case.  B  then  moves  the  court  to  non-suit  A  on  the 
ground  that  A  has  not  made  a  case  as  he  has  not  proved  any 
consideration.     Is  this  contention  good? 

(2.)  Suppose  in  fact  there  was  no  consideration.  Can  B 
plead  and  prove  this  to  defeat  the  suit? 

(3.)  Suppose  there  was  in  fact  no  consideration  but  the  note 
had  been  sold  by  the  payee  to  C,  a  holder  in  due  course.  Can 
the  defense  be  made  by  B  against  C  ? 

(4.)  What  is  meant  by  the  statement  that  an  antecedent  debt 
is  value? 

(5.)  A  desires  to  borrow  $500  from  B.  B  is  willing  to  loan 
the  money  but  is  unsatisfied  with  A's  financial  standing,  where- 
upon A  gets  M  to  make  a  note  to  him,  which  A  then  indorses 
to  B.  M  signs  this  note  as  a  mere  matter  of  friendship  in  order 
to  enable  B  to  get  the  money.  B  knows  that  M  gets  nothing 
for  his  act.  A  defaults,  and  B  sues  M.  M  pleads  lack  of  con- 
sideration and  knowledge  thereof  by  B  when  A  transferred 
the  paper  to  him.  Is  the  defense  good  ?  Why  is  this  not  a  case 
of  lack  of  consideration?    What  is  M  called? 


PART    XV 
NEGOTIATION,  RIGHTS  AND  LIABILITIES 

Chapter  Fifty-eight.    Negotiation. 

Chapter  Fifty-nine.     Holder  in  Due  Course,  Who  is. 

Chapter  Sixty.  Defenses  Not  Available  Against 

Holder  in  Due  Course. 

Chapter  Sixty-one.  Defenses  Available  Against  Hold- 
er in  Due  Course. 

Chapter  Sixty-two.      Liability  of  Parties. 

CHAPTER    FIFTY-EIGHT 
NEGOTIATION 

§  318.  Meaning  of  negotiation.  §  323.  Indorsement  to   or  by  fiscal 
§  319.  Manner  of  indorsement.  officer. 

§  320.  Partial  indorsement.  §  324.  General   rules   and  presump- 
§  321.  Kinds  of  indorsement.  tions  as  to  indorsement. 

§  322.  Indorsement     where     several 
payees. 

Sec.  318.    Meaning  of  Negotiation. 

Case  No.  448.  Uniform  Negotiable  Instruments  Act, 
Sec.  30. 

"An  instrument  is  negotiated  when  it  is  transferred 
from  one  person  to  another  in  such  manner  as  to  consti- 
tute the  transferee  the  holder  thereof;  if  payable  to 
bearer,  it  is  negotiated  by  delivery;  if  payable  to  order, 
it  is  negotiated  by  the  indorsement  of  the  holder,  com- 
pleted by  delivery." 

665 


666  NEGOTIABLE  PAPER 

Question  448:  When  is  an  instrument  negotiated?  If  pay- 
able to  bearer,  how  may  it  be  negotiated?  (When  is  an  instru- 
ment payable  to  bearer?)  If  payable  to  order,  how  may  it  be 
negotiated  ? 


Sec.  319.    Manner  of  Indorsement. 

Case  No.  449.  Uniform  Negotiable  Instruments  Act, 
Sec.  31. 

"The  indorsement  must  be  written  on  the  instrument 
itself  or  upon  a  paper  attached  thereto.  The  signature 
of  the  indorser,  without  additional  words,  is  a  sufficient 
indorsement. ' ' 

Question  449:  (1.)  A  wrote  a  letter  to  B  enclosing  an  unin- 
dorsed promissory  note,  not  payable  to  bearer.  In  the  letter, 
he  stated  that  he  thereby  transferred  and  indorsed  the  instru- 
ment to  B.  B  sent  the  instrument  back  for  indorsement  but 
before  it  was  indorsed  B  learned  of  the  fraud  by  which  A  had 
obtained  the  note  from  the  maker.  Was  the  negotiation  to  B 
complete  before  he  learned  of  the  fraud  ?  Was  B  subject  to  the 
defense?    Why? 

(2.)  May  an  indorsement  ever  be  made  elsewhere  than  on 
the  paper  itself?    When?     (See  also  case  458.) 

Case  No.  450.  Markey  v.  Corey,  108  Mich.  184,  36  L.  R. 
A.  117. 

Facts:  Markey,  as. indorsee,  sues  Corey,  as  indorser, 
of  a  note  transferred  to  him  by  the  following  writing  on 
the  back  thereof,  signed  by  Corey: 

"I  hereby  assign  the  within  note  to  Matthew  M. 
Markey. ' ' 

Defense  that  Markey  is  not  an  indorsee,  and  cannot 
sue  in  his  own  name  as  such,  and  that  the  alleged  in- 
dorser, the  defendant,  assumed  no  liability  as  endorser 
within  the  rules  governing  commercial  paper. 

Point  Involved:  Whether  a  transfer  of  a  note  on  the 
back  thereof  in  the  language  "I  hereby  assign"  is  an 
endorsement. 


MANNER  OF  INDORSEMENT  667 

Long,  J.:    "*     *     * 

"The  usual  mode  of  transfer  of  a  promissory  note  is  by 
simply  writing  the  indorser's  name  upon  the  back,  or  by 
writing  also  over  it  the  direction  to  pay  the  indorsee 
named,  or  order,  or  to  him  or  bearer.  An  indorsement, 
however,  may  be  made  in  more  enlarged  terms,  and  the 
indorser  be  held  liable  as  such.  In  Sands  v.  Wood,  1  Iowa, 
263,  the  indorsement  was,  'I  assign  the  within  note  to 
Mrs.  Sarah  Coffin. '  In  Sears  v.  Lantz,  47  Iowa,  658,  the 
indorsement  on  the  note  was,  'I  hereby  assign  all  my  right 
and  title  to  Louis  Meckley. '  And  in  each  case  the  party  so 
assigning  was  held  as  indorser,  the  Court  in  the  latter  case 
saying  of  Sands  v.  Wood :  'He  used  no  words  that,  in  and 
of  themselves,  indicated  that  he  had  bound  or  made  him- 
self liable  in  case  the  maker,  after  demand,  failed  to  pay 
the  note.  But  it  was  held  the  law,  as  a  legal  conclusion, 
attached  to  the  words  used  the  liability  that  follows  the 
indorsement  of  a  promissory  note.'  See,  also,  Duffy's 
Adm'r  v.  O'Connor,  7  Baxt.  498;  Shelby  v.  Judd,  24  Kan. 
166;  Brotherton  v.  Street,  124  Ind.  599. 

"The  language  used  in  the  assignment  to  the  note  in 
suit  does  not  negative  the  implication  of  the  legal  liability 
of  the  assignor  as  indorser,  and  as  the  words  are  to  be 
construed,  as  strongly  as  their  sense  will  allow,  against 
the  assignor,  he  must  be  held  as  indorser.  This  rule  is 
fully  supported  in  Hatch  v.  Barrett,  34  Kan.  230.  See, 
also,  Adams  v.  Blethen,  66  Me.  19. 

"It  must  be  held,  therefore,  that  the  memorandum  on 
the  note  did  not  relieve  Corey  from  his  liability  as 
indorser. 

"The  Court  was  not  in  error  in  admitting  the  contract 
in  evidence,  as  its  purpose  was  to  show  that  the  note  was 
not  in  fact  limited  by  its  provisions,  and  those  provisions 
of  the  contract  cited  did  not  destroy  the  negotiability  of 
the  note.  (Daniel  Neg.  Inst,  §  48.)—  The  judgment  must 
be  affirmed." 

The  other  justices  concurred. 

Question  450:  State  the  point  involved  and  the  court's  de- 
cision. 


668  NEGOTIABLE  PAPER 

(Note :  There  is  a  conflict  of  authority  in  this  point,  although 
the  weight  of  authority  seems  to  be  with  the  above  case.  See 
Spencer  v.  Halpern,  62  Ark.  595,  36  L.  R.  A.  130  contra.) 

Case  No.  451.    Leavitt  v.  Putnam,  3  N.  Y.  494. 

Hurlbut,  J.:     "•     *     * 

''The  note  in  the  present  case  was  upon  its  face  trans- 
ferable, and  its  character  in  respect  to  negotiability  could 
only  have  been  changed  by  an  indorsement  containing  ex- 
press words  of  restriction.  The  defendants '  indorsement 
was  a  full  one,  containing  the  name  of  the  person  in  whose 
favor  it  was  made,  but  omitting  the  words  '  or  order, '  the 
legal  effect  of  which  was,  nevertheless,  to  make  the  note 
payable  to  him  or  his  order,  and  his  endorsement  there- 
fore was  effectual  to  transfer  the  note  to  the  plaintiff. 
(Chitty  on  Bills,  136;  Story  on  Prom.  Notes,  §  139.) 

"I  am  of  opinion  that  the  judgment  of  the  superior 
court  should  be  reversed,  and  a  new  trial  awarded. — 
Judgment  reversed." 

Question  451:  If  the  note  is  negotiable  on  its  face,  must  the 
endorsement  contain  the  word  "to  order"?  If  it  omit  such 
words,  is  the  negotiation  restricted  to  the  immediate  indorsee; 
or  can  it  be  further  negotiated? 

Sec.  320.    Partial  Indorsement. 

Case  No.  452.  Uniform  Negotiable  Instruments  Act, 
Sec.  32. 

"The  indorsement  must  be  an  indorsement  of  the 
entire  instrument.  An  indorsement  which  purports  to 
transfer  to  the  indorsee  a  part  only  of  the  amount  pay- 
able, or  which  purports  to  transfer  the  instrument  to  two 
or  more  indorsees  severally,  does  not  operate  as  a  nego- 
tiation of  the  instrument.  But  where  the  instrument  has 
been  paid  in  part,  it  may  be  indorsed  as  to  the  residue. ' ' 

Question  452:  State  the  rule  as  here  stated?  If  a  part  of 
the  sum  in  the  instrument  has  been  paid,  can  the  instrument  be 
indorsed  as  to  the  residue  ? 


KINDS  OP  INDORSEMENT  66P 

Sec.  321.    Kinds  of  Indorsement. 

Case  No.  453.  Uniform  Negotiable  Instruments  Act, 
Sees.  33  to  40. 

1 '  (Sec.  33.)  An  indorsement  may  be  either  in  blank  or 
special ;  and  it  may  also  be  either  restrictive  or  qualified, 
or  conditional. 

"  (Sec.  34.)  A  special  indorsement  specifies  the  person 
to  whom  or  to  whose  order  the  instrument  is  to  be  pay- 
able ;  and  the  indorsement  of  such  indorsee  is  necessary  to 
the  further  negotiation  of  the  instrument.  An  indorse- 
ment in  blank  specifies  no  indorsee,  and  an  instrument  so 
indorsed  is  payable  to  bearer,  and  may  be  negotiated  by 
delivery. 

"  (Sec.  35.)  The  holder  may  convert  a  blank  indorse- 
ment into  a  special  indorsement  by  writing  over  the  sig- 
nature of  the  indorser  in  blank  any  contract  consistent 
with  the  character  of  the  indorsement. 

"(Sec.  36.)  An  indorsement  is  restrictive  which 
either : 

"1.  Prohibits  the  further  negotiation  of  the  instru- 
ment ;  or 

1 '  2.  Constitutes  the  indorsee  the  agent  of  the  indorser ; 
or 

"3.  Vests  the  title  in  the  indorsee  in  trust  for  or  to  the 
use  of  some  other  person.  But  the  mere  absence  of  words 
implying  power  to  negotiate  does  not  make  an  indorse- 
ment restrictive. 

"(Sec.  37.)  A  restrictive  indorsement  confers  upon 
the  indorsee  the  right: 

"  1.  To  receive  payment  of  the  instrument. 

"2.  To  bring  any  action  thereon  that  the  indorser  could 
bring. 

"3.  To  transfer  his  rights  as  such  indorsee  where  the 
form  of  the  indorsement  authorizes  him  to  do  so. 

"But  all  subsequent  indorsees  acquire  only  the  title  of 
the  first  indorsee  under  the  restrictive  indorsement. 

"(Sec.  38.)  A  qualified  indorsement  constitutes  the 
indorser  a  mere  assignor  of  the  title  to  the  instrument.  It 


670  NEGOTIABLE  PAPER 

may  be  made  by  adding  to  the  indorser's  signature  the 
words  'without  recourse'  or  any  words  of  similar  import. 
Such  an  indorsement  does  not  impair  the  negotiable  char- 
acter of  the  instrument. 

"(Sec.  39.)  Where  an  indorsement  is  conditional,  a 
party  required  to  pay  the  instrument  may  disregard  the 
condition,  and  make  a  payment  to  the  indorsee  or  his 
transferee,  whether  the  condition  has  been  fulfilled  or  not. 
But  any  person  to  whom  an  instrument  so  indorsed  is 
negotiated,  will  hold  the  same,  or  the  proceeds  thereof, 
subject  to  the  rights  of  the  person  indorsing  conditionally. 

"(Sec.  40.)  Where  an  instrument  originally  payable 
to  or  indorsed  specifically  to  bearer  is  subsequently  in- 
dorsed specially  it  may  nevertheless  be  further  negotiated 
by  delivery ;  but  the  person  indorsing  specially  is  liable  as 
indorser  to  only  such  holders  as  make  title  through  his 
indorsement. ' ' 

Question  453:  (1.)  Define:  special  indorsement;  blank  in- 
dorsement; restrictive  indorsement;  qualified  indorsement;  con- 
ditional indorsement. 

(2.)  How  may  a  blank  indorsement  be  changed?  What 
effect  would  this  have  on  the  manner  of  further  indorsement? 

(3.)  What  right  has  one  to  whom  an  instrument  has  been 
restrictively  indorsed? 

(4.)  What  is  a  qualified  indorsement?  Does  such  indorse- 
ment restrict  further  transfer? 

(5.)  What  is  a  conditional  indorsement?  Does  it  restrict 
further  transfer  ?    Who  may  disregard  the  condition  ? 

Sec.  322.    Indorsement  Where  Several  Payees. 

Case  No.  454.  Uniform  Negotiable  Instruments  Act, 
Sec.  41. 

"Where  an  instrument  is  payable  to  the  order  of  two 
or  more  payees  or  indorsees  who  are  not  partners,  all 
must  indorse  unless  the  one  indorsing  has  authority  to 
indorse  for  the  others.' ' 

Question  454:    State  this  provision. 


INDORSEMENTS  TO  CASHIER  671 

Sec.  323.    Instrument  Drawn  or  Indorsed  to  "Cashier." 

(Negotiable  Instruments  Act,  Sec.  42.) 

Case  No.  455.  First  Nat.  Bk.  v.  McCullough,  50  Ore. 
508,  17  L.  R.  A.  (N.  S.)  1105. 

Facts:  Suit  by  the  bank  on  two  notes.  The  bank 
claims  as  indorsee  under  the  following  indorsement: 
' '  Pay  A.  B.  Nixon,  or  order,  waiving  demand  and  notice 
of  protest.  H.  L.  Moody. ' '  Dixon  was  in  fact  cashier  of 
the  bank.  The  bank  claims  that  as  the  note  was  payable 
to  its  cashier,  it  can  sue  thereon. 

Point  Involved:  Whether  an  indorsement  to  a  cashier 
in  fact,  if  not  stated  to  be  cashier,  may  be  considered 
indorsement  to  the  bank,  if  that  was  the  intention. 

Moore,  J. :  '  *  *  *  *  The  rule  to  be  extracted  from 
these  decisions  has  been  embodied  in  our  statute  known 
as  the  'uniform  negotiable  instruments  law'  as  follows: 
'Where  an  instrument  is  drawn  or  endorsed  to  a  person 
as  "cashier"  or  other  fiscal  officer  of  a  bank  or  corpora- 
tion, it  is  deemed  prima  facie  to  be  payable  to  the  bank  or 
corporation  of  which  he  is  such  officer,  and  may  be  nego- 
tiated by  either  the  indorsement  of  the  bank  or  corpora- 
tion or  the  indorsement  of  the  officer.'  *  *  *  The 
clause  just  quoted  and  the  decisions  adverted  to  are 
undoubtedly  based  on  the  theory  that  the  employment  of 
the  qualifying  word  'cashier'  or  other  designation  of  a 
fiscal  office,  appended  to  the  name  of  a  payee  or  indorsee 
of  commercial  paper,  creates  an  ambiguity  as  to  the  real 
party  intended,  to  explain  which  parol  evidence  is  admis- 
sible to  show  who  is  the  principal  for  whose  benefit  such 
agent  received  or  accepted  the  promise  to  pay  a  stipu- 
lated sum  of  money.  In  the  case  at  bar,  however,  no 
official  designation  is  added  to  Nixon's  name  and  hence 
no  uncertainty  is  apparent  *  *  *  and  parol  evidence 
is  inadmissible  to  control  or  vary  the  terms  of  the  writ- 
ing?.    *     *     * ' '  » 

Question  455:  State  the  facts,  the  question  presented  and 
the  Court 's  ruling  in  the  above'  case. 


672  NEGOTIABLE  PAPER 

Sec.  324.    General  Rules  and  Presumptions  as  to 
Indorsement. 

Case  No.  456.  Uniform  Negotiable  Instruments  Act, 
Sees.  43  to  50. 

"  (Sec.  43.)  Where  the  name  of  the  payee  or  indorsee 
is  wrongly  designated  or  misspelled,  he  may  indorse  the 
instrument  as  therein  described,  adding,  if  he  think  fit, 
his  proper  signature. 

"  (Sec.  44.)  Where  any  person  is  under  obligation  to 
indorse  in  a  representative  capacity,  he  may  indorse  in 
such  terms  as  to  negative  personal  liability. 

"  (Sec.  45.)  Except  where  an  indorsement  bears  date 
after  the  maturity  of  the  instrument,  every  negotiation 
is  deemed  prima  facie  to  have  been  effected  before  the 
instrument  was  overdue. 

"(Sec.  46.)  Except  where  the  contrary  appears, 
every  indorsement  is  presumed  prima  facie  to  have  been 
made  at  the  place  where  the  instrument  is  dated. 

"(Sec.  47.)  An  instrument  negotiable  in  its  origin 
continues  to  be  negotiable  until  it  has  been  restrictively 
indorsed  or  discharged  by  payment  or  otherwise. 

"(Sec.  48.)  The  owner  may  at  any  time  strike  out 
any  indorsement  which  is  not  necessary  to  his  title.  The 
indorser  whose  indorsement  is  struck  out,  and  all  indors- 
ers  subsequent  to  him,  are  thereby  relieved  from  liability 
on  the  instrument. 

"(Sec.  49.)  Where  the  holder  of  an  instrument  pay- 
able to  his  order  transfers  it  for  value  without  indorsing 
it,  the  transferrer  vests  in  the  transferee  such  title  as  the 
transferee  had  therein,  and  the  transferee  acquires,  in 
addition,  the  right  to  have  the  indorsement  of  the  trans- 
ferrer. But  for  the  purpose  of  determining  whether  the 
transferee  is  a  holder  in  due  course,  the  negotiation  takes 
effect  as  of  the  time  when  the  indorsement  is  actually 
made. 

"(Sec.  50.)  Where  an  instrument  is  negotiated  back 
io  a  prior  party,  such  party  may,  subject  to  the  provisions 
&f  this  Act,  reissue  and  further  negotiate  the  same,  but 


RULES  CONCERNING  INDORSEMENTS  673 

he  is  not  entitled  to  enforce  payment  thereof  against  any 
intervening  party  to  whom  he  was  personally  liable.' ■ 

Question  456:  (1.)  A  intends  to  make  a  check  to  Albert 
Norton,  but  being  mistaken  as  to  A's  name,  the  instrument  is 
made  payable  to  Alfred  Norwood.  How  can  or  must  Norton 
indorse  this  check? 

(2.)  A  check  is  made  payable  to  James  Owen,  an  adminis- 
trator, how  may  Owen  indorse  to  escape  personal  liability? 

(3.)  What  is  the  presumption  as  to  when  an  undated  nego- 
tiation was  made  with  respect  to  maturity. 

(4.)     What  is  the  presumption  as  to  place  of  indorsement? 

(5.)     How  long  does  an  instrument  continue  to  be  negotiable? 

(6.)     What  is  the  right  to  strike  out  indorsements? 

(7.)     See  cases  457  and  458  and  the  questions  thereto. 

(8.)  What  right  of  negotiation  has  one  who  acquires  an  in- 
strument on  which  he  was  a  prior  party  ? 


CHAPTER    FIFTY-NINE 
HOLDER  IN  DUE  COURSE— WHO  IS 

§  325.  Importance  of  question.  §  329.  Purchaser  for  value. 

§326.  Indorsement  necessary  (where  §330.  In  good  faith. 

paper     not     payable     to  §  331.  Purchaser  from  holder  in  due 
bearer).  course. 

§  327.  Instrument     complete     and  §  332.  Amount  recoverable  by  hold- 
regular,  er  in  due  course. 

§  328.  Instrument  not  over  due. 

Sec.  325.    Importance  of  the  Question. 

(Note:  It  is  important  to  appreciate  what  is  connoted  by 
the  term  "holder  in  due  course." 

In  the  first  place  we  should  notice  that  one  may  acquire  by 
negotiation  a  good  title  to  negotiable  paper  who  is  not  a  holder 
in  due  course.  That  is,  a  negotiable  instrument  may  be  the 
subject  of  a  gift  (there  being  consideration  in  its  inception 
between  the  original  parties)  and  may  be  transferred  after  it 
is  mature.  We  consider  whether  one  is  a  holder  in  due  course 
in  order  to  ascertain  whether  such  holder  is  subject  to  the 
"equities"  or  defenses  to  which  the  party  from  whom  he 
acquired  the  paper  would  have  been  subject.  If  there  are  no 
such  equities  or  defenses  to  be  raised,  the  holder  may  recover 
although  he  cannot  qualify  as  a  holder  in  due  course.) 

Sec.  326.    Indorsement  Necessary  (Except  Where  Instru- 
ment Payable  to  Bearer). 

Case  No.  457.    Goshen  Bank  v.  Bingham,  118  N.  Y.  349. 

Facts:  The  bank  gave  a  check  to  Brown,  who  acquired 
it  by  fraud.  He  transferred  it  in  due  course  to  Bingham 
&  Co.  except  the  indorsement  of  the  check  (it  not  being 

674 


WHO  IS  HOLDER  IN  DUE  COURSE  675 

payable  to  bearer)  was  overlooked.  Before  the  indorse- 
ment was  procured,  Bingham  &  Co.  had  notice  of  the 
fraud. 

Point  Involved:  Whether  one  who  acquires  an  instru- 
ment which  cannot  be  negotiated  by  delivery,  without 
the  indorsement  thereof  is  a  holder  in  due  course  and 
subject  to  all  defenses  of  which  he  has  notice  prior  to 
such  indorsement. 

Pabkek,  J.:  "As  against  Brown,  to  whose  order  the 
check  was  payable,  the  bank  had  a  good  defense.  But  it 
could  not  defeat  a  recovery  by  a  bona  fide  holder  to  whom 
the  check  had  been  indorsed  for  value.  By  an  oversight 
on  the  part  of  both  Brown  and  Bingham  &  Co.  the  check 
was  accepted  and  cashed  without  the  indorsement  of  the 
payee.  Before  the  authority  to  indorse  the  name  of  the 
payee  upon  the  check  was  procured  and  its  subsequent 
indorsement  thereon,  Bingham  &  Co.  had  notice  of  the 
fraud  which  constituted  a  defense  for  the  bank  as  against 
Brown.    Can  the  recovery  had  be  sustained? 

"It  is  too  well  settled  by  authority,  both  in  England 
and  in  this  country,  to  permit  of  questioning,  that  a  pur- 
chaser of  a  draft,  or  check,  who  obtains  title  without  an 
indorsement  by  the  payee,  holds  it  subject  to  all  equities 
and  defenses  existing  between  the  original  parties,  even 
though  he  has  paid  full  consideration,  without  notice  of 
the  existence  of  such  equities  and  defenses.  Harrop  v. 
Fisher,  30  L.  J.  283;  Whistler  v.  Forster,  14  C.  B.  (N.  S.) 
246;  Savage  v.  King,  17  Me.  301;  Clark  v.  Callison,  7  111. 
263 ;  Haskell  v.  Mitchell,  53  Me.  468;  Clark  v.  Whittaker, 
50  N.  H.  474;  Calder  v.  Billington,  15  Me.  398;  Lancaster 
Nat.  Bk.  v.  Taylor,  100  Mass.  18 ;  Gilbert  v.  Sharp,  2  Lans. 
412;  Hedges  v.  Sealy,  9  Barb.  214-218;  Franklin  Bank.  v. 
Raymond,  3  Wend.  69 ;  Raynor  v.  Hoagland,  7  J.  &  S.  11 ; 
Muller  v.  Pondir,  55  N.  Y.  325;  Freund  v.  Importers  & 
Traders  Bk.,  76  Id.  352 ;  Trust  Co.  v.  Nat.  Bank,  101 U.  S. 
68;  Osgood  v.  Artt,  17  Fed.  Rep.  575. 

"The  reasoning  on  which  this  doctrine  is  founded  may 
be  briefly  stated  as  follows :    The  general  rule  is  that  no 


676  NEGOTIABLE  PAPER 

one  can  transfer  a  better  title  than  lie  possesses.  An 
exception  arises  out  of  the  rule  of  the  law-merchant,  as 
to  negotiable  instruments.  It  is  founded  on  the  commer- 
cial policy  of  sustaining  the  credit  of  commercial  paper, 
being  treated  as  currency  in  commercial  transactions, 
such  instruments  are  subject  to  the  same  rule  as  money. 
If  transferred  by  indorsement,  for  value,  in  good  faith 
and  before  maturity,  they  become  available  in  the  hands 
of  the  holder,  notwithstanding  the  existence  of  equities, 
and  defenses,  which  would  have  rendered  them  unavail- 
able in  the  hands  of  a  prior  holder. 

1 '  This  rule  is  only  applicable  to  negotiable  instruments 
which  are  negotiated  according  to  the  law-merchant. 

"When,  as  in  this  case,  such  an  instrument  is  trans- 
ferred but  without  an  indorsement,  it  is  treated  as  a  chose 
in  action  assigned  to  the  purchaser.  The  assignee 
acquires  all  the  title  of  the  assignor  and  may  maintain  an 
action  thereon  in  his  own  name.  And  like  other  choses 
in  action  it  is  subject  to  all  the  equities  and  defenses  exist- 
ing in  favor  of  the  maker  or  acceptor  against  the  previous 
holder. 

"Prior  to  the  indorsement  of  this  check,  therefore, 
Bingham  &  Co.  were  subject  to  the  defense  existing  in 
favor  of  the  bank  as  against  Brown,  the  payee. 

' '  Evidence  of  an  intention  on  the  part  of  the  payee  to 
indorse  does  not  aid  the  plaintiff.  It  is  the  act  of  indorse- 
ment, not  the  intention,  which  negotiates  the  instrument, 
and  it  cannot  be  said  that  the  intent  constitutes  the  act. 

"The  effect  of  the  indorsement  made  after  notice  to 
Bingham  &  Co.  of  the  bank's  defense  must  now  be  con- 
sidered. Did  it  relate  back  to  the  time  of  the  transfer, 
so  as  to  constitute  the  plaintiffs  holders  by  indorsement 
as  of  that  time  ? 

"While  the  referee  finds  that  it  was  intended  both  by 
Brown  and  the  plaintiffs  that  the  check  should  be 
indorsed,  and  it  was  supposed  that  he  had  so  indorsed 
it,  he  also  finds  that  Brown  made  no  statement  to  the 
effect  that  the  check  was  indorsed;  neither  did  the 
defendants  request  Brown  to  indorse  it.     There  was, 


WHO  IS  HOLDER  IN  DUE  COURSE  677 

therefore,  no  agreement  to  indorse.  Nothing  whatever 
was  said  upon  the  subject.  Before  Brown  did  agree  to 
indorse  the  plaintiffs  had  notice  of  the  bank's  defense. 
Indeed,  it  had  commenced  an  action  to  recover  possession 
of  the  check. 

"It  would  seem,  therefore,  that  having  taken  title  by 
assignment,  for  such  was  the  legal  effect  of  the  trans- 
action, by  reason  of  which  the  defense  of  the  bank  against 
Brown  became  effectual  as  a  defense  against  a  recovery 
on  the  check  in  the  hands  of  the  plaintiffs  as  well,  that 
Brown,  and  Bingham  &  Co.,  could  not,  by  any  subsequent 
agreement  or  act,  so  change  the  legal  character  of  the 
transfer  as  to  affect  the  equities  and  rights  which  had 
accrued  to  the  bank.  That  the  subsequent  act  of  indorse- 
ment could  not  relate  back  so  as  to  destroy  the  interven- 
ing rights  and  remedies  of  a  third  party. 

"This  position  is  supported  by  authority.  Harrop  v. 
Fisher ;  Whistler  v.  Forster ;  Savage  v.  King ;  Haskell  v. 
Mitchell ;  Clark  v.  Whitaker ;  Clark  v.  Callison ;  Lancaster 
Nat.  Bank  v.  Taylor;  Gilbert  v.  Sharp,  cited,  supra." 

Question  457:  (1.)  What  were  the  facts,  the  question  pre- 
sented and  the  Court's  decision  in  the  above  case? 

(2.)     What  did  the  court  give  as  the  reason  for  the  doctrine? 

Case  No.  458.     Osgood's  Adm'rs  v.  Artt,  17  Fed.  575. 

Facts:  May  14,  1856,  Artt,  executed  and  delivered  to 
R.  &  M.  Rwy.  Co.  his  note,  payable  to  the  Company  or 
its  order,  for  $2,500,  in  five  years  from  May  10,  1856, 
with  interest,  etc.  As  security  therefore,  he  executed  a 
mortgage  on  real  estate  in  Carroll  County,  Wisconsin. 
Afterwards  the  R.  Co.  made  its  bond  dated  June  10, 1856, 
acknowledging  indebtedness  to  and  promising  to  pay 
Charles  Osgood  or  bearer  $2,500,  May  10,  1861,  with 
interest,  etc.,  which  contained  a  provision  that  to  better 
secure  said  bond  the  company  "have  assigned  and  trans- 
ferred, and  by  these  presents  do  assign  and  transfer"  to 
the  holder  of  the  bond,  the  said  note  signed  by  Artt, 
together  with  the  mortgage  on  said  real  estate.     The 


678  NEGOTIABLE  PAPER 

Artt  note,  the  bond  and  the  mortgage  were  attached 
together  with  eyelets.  When  these  papers  were  delivered 
to  Osgood,  there  was  no  indorsement  of  the  note,  which 
though  afterwards  secured  in  these  words,  "Racine  & 
Mississippi  Railroad  Company,  by  H.  S.  Durand,  Presi- 
dent," was  not  placed  on  said  note  until  after  Osgood 
had  learned  that  the  note  had  been  secured  from  Artt  by 
fraud,  and  that  also  there  had  been  a  failure  of  consid- 
eration. Artt,  contending  that  Osgood  is  not  a  holder  in 
due  course,  seeks  to  set  up  these  defenses  against  him. 
Osgood  did  not  know  of  the  defenses  when  he  purchased 
and  received  the  notes,  but  learned  of  them  before  he 
secured  the  indorsement. 

Point  Involved:  As  in  the  above  case,  with  the  addi- 
tional question  as  to  what  constitutes  an  indorsement. 

Harlan,  J.:  "1.  It  is  a  settled  doctrine  of  the  law- 
merchant  that  the  bona  fide  purchaser  for  value  of  nego- 
tiable paper,  payable  to  order,  if  it  be  indorsed  by  the 
payee,  takes  the  legal  title  unaffected  by  any  equities 
which  the  payor  may  have  as  against  the  payee. 

1 '  2.  But  it  is  equally  well  settled  that  the  purchaser,  if 
the  paper  be  delivered  to  him  without  indorsement,  takes, 
by  the  law-merchant  only  the  rights  which  the  payee  has, 
and  therefore  takes  subject  to  any  defense  the  payor 
might  rightfully  assert  as  against  the  payee.  The  pur- 
chaser in  such  case  becomes  only  the  equitable  owner  of 
the  claim  or  debt  evidenced  by  the  negotiable  security, 
and,  in  the  absence  of  defense  by  the  payor,  may  demand 
and  receive  the  amount  due  and,  if  not  paid,  sue  for  its 
recovery,  in  the  name  of  the  payee,  or  in  his  own  name, 
when  so  authorized  by  the  local  law. 

"3.  As  a  general  rule  the  legal  title  to  negotiable 
paper,  payable  to  order,  passes,  according  to  the  law- 
merchant,  only  by  the  payee 's  indorsement  on  the  security 
itself.  The  only  established  exception  to  this  rule  is 
where  the  indorsement  is  made  on  a  piece  of  paper,  so 
attached  to  the  original  instrument  as,  in  effect,  to  become 
part  thereof,  or  be  incorporated  into  it.    This  addition 


WHO  IS  HOLDER  IN  DUE  COURSE  679 

is  called,  in  the  adjudged  cases  and  elementary  treatises, 
an  allonge.  That  device  had  its  origin  in  cases  where  the 
back  of  the  instrument  had  been  covered  with  indorse- 
ments, or  writing,  leaving  no  room  for  further  indorse- 
ments thereon.  But,  perhaps,  an  indorsement  upon  a 
piece  of  paper,  attached  in  the  manner  indicated,  would 
now  be  deemed  sufficient  to  pass  the  legal  title,  although 
there  may  have  been,  in  fact,  room  for  it  on  the  original 
instrument. 

"4.  But  neither  the  general  doctrines  of  commercial 
law,  nor  any  established  exception  thereto,  make  words 
of  mere  assignment  and  transfer  of  such  paper — con- 
tained in  a  separate  instrument,  executed  for  a  wholly 
different  and  distinct  purpose — equivalent  to  an  indorse- 
ment within  the  rule,  which  admits  the  payor  to  urge,  as 
against  the  holder  of  an  unindorsed  negotiable  security, 
payable  to  order,  any  valid  defense  which  he  has  against 
the  original  payee. 

"5.  The  transfer  of  the  note  in  suit,  by  words  of 
assignment  in  the  body  of  the  railroad  company's  bond, 
did  not,  in  the  judgment  of  the  Court,  amount  to  an 
indorsement  of  the  note,  although  the  bond,  note  and 
mortgage  were  originally  fastened  together  by  eyelets. 
The  facts  set  out  in  the  third  plea,  and  sustained  by  the 
special  finding,  constitute,  therefore,  a  complete  defense 
to  the  action,  unless,  as  contended  by  plaintiffs,  the  sub- 
sequent indorsement,  in  form,  by  the  railroad  company, 
after  Osgood  was  informed  of  Artt's  defense,  has  rela- 
tion back  to  the  time  when  the  former,  without  notice  of 

such  defense,  purchased  the  note  for  value  then  paid. 

*     *     # 

"I  am  of  the  opinion  that  the  facts  which  came  to 
Osgood's  knowledge  prior  to  the  indorsement,  and  which, 
in  substance,  constitute  the  defense  set  out  in  the  third 
plea,  furnished  notice  that  the  company  had,  by  reason 
of  fraud  and  failure  of  consideration,  lost  its  right  to 
demand  payment  of  the  note  from  Artt.  By  the  indorse- 
ment, after  such  notice,  Osgood  could  not  acquire  any 
greater  rights  than  the  company  possessed.    He  did  not 


680  NEGOTIABLE  PAPER 

become  the  holder  of  the  note  by  indorsement,  as  required 
by  the  law-merchant,  until  after  he  had  notice  that  the 
company  could  not  rightfully  pass  the  legal  title,  so  as 
to  defeat  Artt's  defense. 

"While  the  adjudged  cases  are  not  ?.n  harmony  upon 
some  of  these  propositions,  the  conclusions  indicated  are, 
in  the  opinion  of  the  Court,  consistent  with  sound  reason, 
and  are  sustained  by  the  great  weight  of  authority. ' ' 

Question  458:    State  the  facts,  the  question  presented  and 
the  Court's  decision  in  this  case. 
(2.)     What  is  an  "allonge"? 

Sec.  327.   The  Instrument  Must  Be  Complete  and  Regular. 
Case  No.  459.     Elias  v.  Whitney,  98  N.  Y.  Supp.  667. 

Truak,  J. :  ' '  The  evidence  showed  that  the  check  in 
suit  had  been  changed  before  it  reached  the  plaintiff,  and 
that  a  mere  inspection  of  the  check  showed  such  change. 
There  is  no  evidence  showing  that  the  defendant  author- 
ized or  assented  to  the  alteration,  but  the  appellant  says 
that  he  is  'a  holder  in  due  course,*  and  not  a  party  to  the 
alteration,  and  that  under  Sec.  205  of  the  Negotiable 
Instruments  Law  (Laws,  1897)  p.  745  (c.  612),  he  may 
enforce  the  payment  of  the  check,  according  to  its  origi- 
nal tenor.  Sec.  91,  p.  732,  of  the  Negotiable  Instruments 
Law,  states  what  constitutes  a  holder  in  due  course. 
According  to  that  section,  a  holder  in  due  course  is  a 
holder  who  has  taken  an  instrument  that  is  complete  and 
regular  on  its  face.  This  instrument  was  not  complete 
and  regular  on  its  face  at  the  time  the  defendant  took  it. 
As  we  have  stated  before,  a  mere  inspection  of  the  instru- 
ment showed  its  defect,  and,  therefore,  under  subdivision 
41  of  the  negotiable  instruments  law,  plaintiff  had  notice 
of  an  infirmity  in  the  instrument  at  the  time  he  took  it. ' ' 

Question  459:  State  the  facts  of  this  case  and  the  Court's 
decision. 


WHO  IS  HOLDER  IN  DUE  COURSE  681 

Sec.  328.    One  Is  Not  a  Holder  in  Due  Course  Unless 
Instrument  Acquired  Before  Overdue. 

Case  No.  460.    Fisher  v.  Leland  et  al.,  58  Mass.  456. 

Shaw,  C.  J . :  '  *  *  *  *  But  where  a  negotiable  note 
is  found  in  circulation  after  it  is  due,  it  carries  suspicion 
on  the  face  of  it.  The  question  instantly  arises,  why  is 
it  in  circulation, — why  is  it  not  paid?  Here  is  something 
wrong.  Therefore,  although  it  does  not  give  the  indorser 
notice  of  any  specific  matter  of  defense,  such  as  set-off, 
payment,  or  fraudulent  acquisition,  yet  it  puts  him  on 
inquiry;  he  takes  only  such  title  as  the  indorsee  himself 
has,  and  subject  to  any  defense  which  would  be  made,  if 
the  suit  were  brought  by  the  indorser.  The  note  does  not 
cease  to  be  negotiable ;  the  indorsee  takes  title,  and  may 
sue,  but  he  is  so  far  in  privity  with  his  indorser  that  he 
takes  only  his  title ;  and  if  the  defendant  could  make  any 
defense  against  suit  brought  by  such  indorser,  he  can 
make  it  against  the  indorsee.     *     *     * ' ' 

Question  460:     (1.)     Why  does  the  purchaser  of  an  over- 
due note  take  it  subject  to  the  defenses? 
(2.)     Is  an  overdue  note  still  negotiable? 

Case  No.  461.    Wilkins  v.  Usher,  123  Kentucky,  696. 

Facts:  Suit  by  an  indorsee  of  a  note  reading:  "One 
day  after  date,  we  promise  to  pay,"  etc.,  and  which  the 
indorsee  purchased  on  the  day  after  its  date. 

Defense:  That  the  note  was  secured  by  the  payee 
(indorser  to  plaintiff)  by  fraud. 

Point  Involved:  Whether  a  negotiable  instrument  pur- 
chased on  the  day  of  its  maturity  is  acquired  in  due  course. 

Hobson,  C.  J.:  "•  *  *  The  note  was  dated  Sep- 
tember 21st.  It  was  payable  one  day  after  date,  on  Sep- 
tember 22,  but  it  was  not  overdue  at  any  time  on  the 
22nd.  Sec.  52  provides  among  other  things  that  the  pur- 
chaser of  a  note  before  it  is  overdue  may  be  a  holder  for 


682  NEGOTIABLE  PAPER 

value.    Usher's  purchase  was  made  before  the  note  was 
overdue.    *     *     *" 

Question  461:-  State  the  rule  of  this  case. 

Case  No.  462.    Mitchel  v.  Catchings,  23  Fed.  710. 

Facts:    See  the  opinion. 

Point  Involved:  When  a  demand  note  is  to  be  consid- 
ered as  overdue  from  the  standpoint  of  one  who  claims  to 
purchase  in  due  course. 

Brewer,  J.  (orally) :  "In  Mitchell  v.  Catchings,  action 
on  a  note  for  $5,000,  there  is  really  only  one  question,  and 
that  is,  whether  the  plaintiff  was  a  bona  fide  holder,  before 
due,  of  the  note  in  controversy.  In  its  inception  the  note 
was  a  note  given  as  security  for  option  deals — a  pure 
gambling  transaction — a  note  void  as  between  the  parties 
beyond  any  question.  The  plaintiff  claims  to  be  a  bona 
fide  holder  before  due.  The  note  is  a  demand  note,  dated 
November  13th,  indorsed  to  plaintiff,  December  6th.  No 
demand  was  in  fact  made  prior  to  transfer.  While  it  is 
true,  a  letter  was  written  by  McCormick,  of  the  firm  of 
Smith,  McCormick  &  Co.,  the  payees  of  the  note,  yet 
there  was  no  presentment  of  the  paper  to  the  maker,  no 
demand  within  the  rules  of  the  law-merchant.  Twenty- 
three  days  elapsed  between  the  making  of  the  paper  and 
the  transfer.  Is  that  such  length  of  time  that  the  Court 
is  justified  in  presuming  a  demand,  and  holding  that  the 
paper  was  taken  overdue  ?  The  books  show  it  is  a  mixed 
question  of  law  and  fact  as  to  what  is  a  reasonable  time 
within  which  payment  must  be  made.  In  Daniel,  Nego- 
tiable Instruments,  quoting,  I  think,  from  Paron's  Notes 
and  Bills,  the  author  makes  use  of  an  expression  some- 
what like  this : 

"  'That  it  is  unquestionable  that  one  day  would  not 
be  a  reasonable  time,  and  that  five  years  would  be  an 
unreasonable  delay.  Intermediate  these  times  there  is 
nothing  settled,  and  each  case  must  be  left  to  be  deter- 
mined upon  its  own  peculiar  circumstances. ' 


WHO  IS  HOLDER  IN  DUE  COURSE  683 

"This  note  was  given  as  security  for  a  continuing 
transaction.  In  the  contemplation  of  the  parties,  it  was 
not  to  be  immediately  paid.  *  *  *  Hence,  as  between 
the  parties,  it  being  contemplated  that  it  was  to  stand  as 
security  for  a  continuing  transaction,  and  not  as  paper 
which  was  to  be  immediately  collected  and  paid,  it  does 
not  seem  to  me  that  23  days  can  be  held  to  be  an  unrea- 
sonable time.  Counsel  said  in  the  argument  (I  do  not 
know  whether  correctly  or  not,  for  I  have  not  had  time  to 
examine)  that  no  case  can  be  found  in  the  books  in  which 
any  period  less  than  thirty  days  has  been  held  to  be  an 
unreasonable  time.  Applying  the  law  as  thus  laid  down 
in  the  books,  I  cannot  hold  that  the  note  was  transferred 
after  due.     *     *     *" 

Question  462:  (1.)  What  was  the  time  this  note  had  been 
outstanding?    Was  it  overdue? 

(2.)  Suppose  a  demand  had  actually  been  made  one  day 
after  the  note  was  given,  but  this  was  unknown  to  the  pur- 
chaser, would  the  note  be  overdue  as  to  him? 

Case  No.  463.  Paine  v.  Central  Vermont  R.  Co.,  14 
Federal,  269. 

Facts :  Plaintiff  bought  the  demand  note  sued  on  within 
3  and  4  months  after  its  date.  There  was  nothing  due 
on  the  note  when  he  bought  it. 

Point  Involved:  When  a  demand  note  is  to  be  consid- 
ered overdue. 

Wheeler,  D.  J. :    "*     *     * 

<<*     *     *     ^g  ^g  noj.e  was  on  demand,  it  was  due 

presently.  It  would  have  to  be  presented  and  paid 
according  to  the  usual  course  of  business,  if  free  from 
defenses.  The  time  would  come  when,  if  outstanding, 
the  presumption  would  be  that  it  had  been  demanded,  or 
that  a  demand  had  been  omitted  because  known  to  be 
unavailing.  If  this  time  was  such  as  to  make  it  reason- 
able to  suppose  that  the  note  was  outstanding  because  it 
would  not  be  paid,  then  the  plaintiff  was  in  fault  in  tak- 
ing it  without  inquiring  of  the  maker.    Whether  the  lapse 


684  NEGOTIABLE  PAPER 

of  time  was  such  is  a  question  of  law.    On  this  question 

the  authorities  are  not  uniform,  but  no  case  shows  that 

more  than  three  months  can  reasonably  be  overlooked. 

Business  paper  would  usually  be  adjusted  within  that 

time,  if  regular.    In  this  case  the  circumstance  that  the 

holder  of  the  note  was  borrowing  on  disadvantageous 

terms,  would  lead  directly  to  the  inquiry  why  he  did  not 

resort  to  the  maker  of  the  note  when  it  was  due  on 

demand.    Had  the  plaintiff  inquired,  the  presumption  is 

that  he  would  have  learned  the  truth,  and  both  would 

have  been  saved  from  loss.    As  he  did  not  inquire,  it 

seems  more  just,  as  well  as  lawful,  that  he  should  take 

the  risk  brought  about  by  the  failure  to  inquire,  than  that 

the  defendant  should. 
urn     #     * 

"The  plaintiff  must  stand  upon  his  rights  acquired 
by  taking  the  npte  at  the  time  and  under  the  circumstances 
when  he  took  it.  The  note  was  at  that  time  overdue,  and 
he  took  it  with  the  same  obligation  that  it  carried  in  the 
hands  of  the  person  whom  he  took  it  of.  This  principle 
that  overdue  paper  is  taken  subject  to  all  defenses  is  so 
well  settled  in  the  law  as  to  require  no  citation  of  authori- 
ties to  support  it." 

Question  463:  State  the  facts  in  this  case,  and  the  Court's 
reasoning. 

Case  No.  464.    Kelley  v.  Whitney,  45  Wisconsin,  110. 

Facts:  Suit  on  note  acquired  by  plaintiff  as  indorsee 
before  overdue,  but  at  a  time  when  interest  was  overdue 
and  unpaid.  Defendants  claim  payment  to  the  payee 
prior  to  the  indorsement.  The  question  presented  is 
whether  the  note  is  to  be  considered  as  overdue  within 
the  rule  making  the  purchaser  of  an  overdue  instrument 
subject  to  defenses. 

Point  Involved:  Is  a  note  to  be  considered  as  over- 
due to  affect  a  purchaser  with  the  equities  thereof  from 
the  fact  that  interest  thereon  is  overdue  and  unpaid. 


WHO  IS  HOLDER  IN  DUE  COURSE  685 

Cole,  J. :  "  Can  the  plaintiff,  under  the  circumstances, 
claim  the  protection  which  the  law  affords  a  bona  fide  pur- 
chaser of  commercial  paper  for  value,  before  maturity? 
[Here  the  Court  reviews  certain  former  Wisconsin  de- 
cisions] *  *  *  we  deem  it  our  duty  to  adhere  to  the 
rule,  that  a  purchaser  for  value  of  unmatured,  commer- 
cial paper,  with  interest  overdue,  is  not,  from  that  fact 
alone,  affected  with  notice  of  prior  equities  or  infirmities 
in  the  title." 

Question  464:  State  the  facts,  the  question  presented  and 
the  Court's  decision  in  this  case. 

Case  No.  465.    Vinton  v.  King,  86  Mass.  562. 
Facts:    Action  on  a  note  dated  April  26,  1858,  as  fol- 
lows: 

1 '  Two  years  after  date,  by  installments  of  $53  in  every 
six  months  after  this  date,  until  fully  paid,  I  promise  to 
pay  Peter  Bruyett,  or  bearer,  the  sum  of  two  hundred 
and  twelve  dollars  with  interest  in  manner  above  stated. 

''John  King." 

This  note  was  acquired  by  the  plaintiff  about  three 
months  after  the  first  installment  was  overdue  and  unpaid. 

Defense:  That  the  note  was  acquired  by  the  payee  by 
duress. 

Point  Involved:  Whether  a  note  payable  in  install- 
ments is  to  be  considered  as  overdue  so  as  to  subject  a 
purchaser  to  the  defenses  against  his  transferror,  from 
the  fact  that  one  of  the  installments  is  overdue  and  unpaid. 

Metcalf,  J.:  "•  *  *  it  being  admitted  law,  that 
he  who  takes  a  note  after  it  is  due  takes  it  subject  to  all 
objections  and  equities  to  which  it  was  liable  in  the  hands 
of  him  from  whom  he  takes  it,  and  to  the  same  defenses, 
in  a  suit  against  the  maker,  which  the  maker  might  set  up 
in  an  action  against  him  by  the  payee ;  that  the  circum- 
stances that  a  note  is  overdue  makes  it  incumbent  on  the 
party  receiving  it  to  satisfy  himself  that  it  is  a  good  one, 


686  NEGOTIABLE  PAPER 

and  that  if  he  omit  so  to  do,  he  must  stand  in  the  situation 
of  him  who  was  holder  at  the  time  it  was  due.  *  *  * 
But  the  ground  assumed  by  the  plaintiff  is,  that  in  this 
case  the  note  had  not,  within  the  rule  of  law  on  this  sub- 
ject, come  to  maturity,  and  was  not  overdue  and  dishon- 
ored before  it  was  transferred  to  him,  because  tne  time 
for  payment  of  the  last  three  installments  had  not  then 
come.  The  ground  is  not  maintainable.  As  to  the  first 
installment  of  $53  in  six  months,  and  interest  on  $212, 
the  note  had  come  to  maturity  and  was  overdue  and  dis- 
honored when  the  plaintiff  took  it ;  and  as  to  the  amount 
of  that  installment,  it  is  not  to  be  doubted  that  the  defend- 
ant may  make  the  same  defense  against  the  plaintiff, 
which  he  might  have  made  against  the  payee.  And  we 
are  of  the  opinion  that  he  may  make  the  same  defense  to 
the  whole  note  The  note  is  a  single  contract  to  pay  $212 
in  four  half-yearly  installments,  and  the  plaintiff  took 
it  with  notice  on  its  face  that,  as  to  the  first  installment, 
the  defendant  might  have  a  justifiable  cause  for  with- 
holding payment,  whatever  that  cause  might  be ;  whether 
a  cause  which  affected  that  installment  only — as  a  release 
thereof  by  the  payee,  or  a  legal  set-off  against  him  to  the 
amount  thereof — or  a  cause  which,  between  him  and  the 
payee,  vitiated  the  whole  note,  as  want  or  failure  of  con- 
sideration, unlawful  consideration,  fraud  or  duress.  And 
if  the  payee  had  sued  for  the  recovery  of  the  first  install- 
ment, before  the  second  was  made  payable,  the  defendant 
might  have  defeated  the  action,  by  showing  that  the  note 
was  wholly  void  and  a  judgment  for  him,  on  such  ground 
of  defense,  would  have  been  conclusive  against  the  main- 
tenance, by  the  payee,  of  a  subsequent  action  to  recover 
the  other  installments.  Black  River  Savings  Bank  v. 
Edwards,  10  Gray,  387.'  * 

Question  465 :    State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Case  No.  466.    Gillette  v.  Hodge,  170  Federal,  313. 
Facts:    See  the  opinion. 


WHO  IS  HOLDER  IN  DUE  COURSE  687 

Point  Involved:  Whether  a  note  which  provides  that 
if  interest  is  not  paid  when  due  the  whole  note  shall 
become  due  is  to  be  considered  as  overdue,  so  as  to  affect 
a  purchaser,  from  the  fact  that  the  interest  is  overdue 
and  unpaid. 

Amidon,  D.  J. :  * '  This  was  an  action  brought  by  Hodge 
Bros.,  the  defendants  in  error,  against  the  plaintiffs  in 
error,  on  three  promissory  notes,  dated  April  13,  1903, 
payable  to  Robert  Burgess  &  Son,  or  order,  respectively, 
July  1,  1904,  1905  and  1906,  with  interest  payable 
annually.  The  notes  contained  a  provision  that  default 
in  the  payment  of  interest  should  cause  the  whole  note  to 
become  immediately  due.  The  plaintiffs  are  private 
bankers,  who  discounted  the  notes  at  the  rate  of  10  per 
cent,  on  June  2,  1904,  passing  the  proceeds  to  the  credit 
of  the  payees,  who  afterwards  drew  the  same  in  full. 
The  answer  interposes  two  defenses:  First,  that  the 
notes  were  given  as  the  purchase  price  of  a  stallion,  and 
that  the  horse  failed  to  comply  with  the  warranties  made 
by  the  vendors;  second,  that  the  notes  were  handed  to 
the  payees  by  the  defendants  upon  an  express  agreement 
that  they  should  not  be  treated  as  delivered  until  the,  sig- 
nature of  four  other  persons  named  in  the  answer  should 
be  obtained,  and  that,  unless  such  signatures  should  be 
obtained,  the  notes  should  be  of  no  effect.  To  make  these 
defenses  available,  the  defendants  first  sought  to  show 
that  the  notes  were  dishonored  at  the  time  they  were 
acquired  by  the  plaintiffs.  Their  main  reliance  for  estab- 
lishing this  fact  is  the  provision  in  the  notes  that  they 
should  become  immediately  due  if  there  was  default  in 
the  payment  of  interest.  The  first  year's  interest  was 
due  April  13,  1904.  This  installment  of  interest  was, 
therefore,  past  due  on  June  2d,  when  plaintiffs  acquired 
the  notes ;  and  it  is  urged  that  this  fact,  when  combined 
with  the  clause  of  the  note  just  referred  to,  caused  the 
notes  to  mature  April  13th  and  that  they  were,  therefore, 
dishonored  at  the  time  of  the  indorsement.  The  difficulty 
with  this  contention  is  that  the  provision  of  the  notes  upon. 


688  NEGOTIABLE  PAPER 

which  it  is  based  is  not  self -executory.  It  simply  gave  to 
the  holder  an  option  to  declare  the  notes  due  for  default 
in  the  payment  of  interest.  There  is  some  conflict  in 
judicial  decisions  as  to  the  effect  of  such  a  provision 
(Hodge  Bros.  v.  Wallace,  129  Wis.  84, 108  N.  W.  212, 116 
Am.  St.  Rep.  938) ;  but  it  was  expressly  ruled  by  the 
Supreme  Court  of  the  United  States  in  the  case  of  Chi- 
cago Railroad  Equipment  Co.  v.  Merchants'  National 
Bank,  136  U.  S.  268,  10  Sup.  Ct.  999,  34  L.  Ed.  349,  that 
a  similar  provision  did  not  of  itself  cause  the  notes  to 
mature  upon  default  in  the  payment  of  interest.  See, 
also,  Keene  Five  Cent  Savings  Bank  v.  Reid,  123  Fed. 
221,  224,  59  C.  C.  A.  225;  Crissey  v.  Morrill,  125  Fed.  878, 
884,  60  C.  C.  A.  460.  There  being  no  statute  in  the  state 
of  Minnesota,  where  the  notes  were  given  and  payable, 
affecting  the  subject,  the  decision  of  the  Supreme  Court 
is  controlling  in  federal  courts,  as  the  question  relates 
to  a  matter  of  general  commercial  law. 

"An  effort  was  also  made  at  the  trial  to  prove  the 
agreement  relating  to  the  conditional  delivery  of  the 
notes.  Defendants,  however,  did  not  offer  to  prove  that 
the  plaintiffs  had  any  notice  of  this  agreement  at  the 
time  they  became  indorsees  of  the  paper,  and  for  this 
reason  the  evidence  was  excluded.  As  between  the  origi- 
nal parties  the  agreement  would  have  constituted  a  valid 
defense.  Burke  v.  Dulaney,  153  U.  S.  228,  14  Sup.  Ct. 
816, 38  L.  Ed.  698.  But  it  could  not  be  available  as  against 
an  indorsee  in  good  faith.  Signers  of  negotiable  paper 
cannot  place  it  in  the  hands  of  the  payee  conditionally 
so  as  to  affect  subsequent  bona  fide  holders.  This  is  now 
elementary  law.  ]  Randolph  on  Commercial  Paper,  411 ; 
Daniel  on  Negotiable  Instruments,  68.  The  conditional 
agreement  gave  rise  to  mere  'equity,'  which  was  cut  off 
by  transfer  of  the  paper  to  party  taking  without  notice. 
Chase  National  Bank  v.  Faurot,  149  N.  Y.  532,  44  N.  E. 
164,  35  L,  R.  A.  605 ;  Cooper  v.  Merchants '  &  Manufac- 
turers '  National  Bank,  25  Ind.  App.  341,  57  N.  E.  569; 
First  National  Bank  of  Freeport  v.  Comp-Board  Mfg. 
Co.,  61  Minn.  274,  63  N.  W.  731. 


WHO  IS  HOLDER  IN  DUE  COURSE  689 

"On  quite  elementary  principles,  the  judgment  in  this 
case  was  right,  and  should  be  affirmed. ' ' 

Question  466:  What  was  the  question  presented  and  on  what 
reasoning  did  the  Court  hold  the  note  was  not  overdue? 

Sec.  329.  One  Is  Not  a  Holder  in  Due  Course  Unless  He 
Gives  Value  Before  the  Note  Is  Overdue  and  Before  He 
Receives  Notice. 

(Note :  As  to  inadequacy  of  value  as  constituting  notice 
of  defect,  see  next  section.) 

Case  No.  467.  Daniels  on  Negotiable  Instruments,  6th 
Ed.,  Sec.  777,  p.  902. 

"  *  *  *  it  has  been  said  that '  the  consideration  for 
the  transfer  must  be  full  and  fair  as  well  as  valuable' 
(citing  cases  in  foot  note)  while  in  another  case  it  is  said 
that  '  when  a  parting  with  value  is  proved  the  amount  of 
the  consideration  is  not  otherwise  important  than  as  bear- 
ing on  the  question  of  actual  or  constructive  notice'  (cit- 
ing Gould  v.  Segee,  5  Duer,  260).  This  latter  view  seems 
to  us  the  correct  one.  The  owner  of  a  bill  or  note  has  as 
much  right  to  sell  it  as  he  has  to  sell  his  horse.  The  prior 
parties,  by  making  it  negotiable,  have  warranted  the  right 
of  the  payee  or  indorsee  to  make  title  to  another. 

"And  if  he  does  so  at  any  price,  the  holder  acquires 
full  rights  and  interests  in  the  instrument,  as  against  all 
parties,  unless  he  had  notice  of  defects,  or  wilfully 
abstained  from  inquiry  under  circumstances  which  justify 
the  imputation  of  bad  faith. ' ' 

Question  467:  State  the  doctrine  of  the  above  paragraph  and 
give  an  illustration. 

Case  No.  468.  Warman  v.  First  National  Bank,  185 
Illinois,  60. 

Point  Involved:  Whether  one  is  a  purchaser  in  due 
course  who  on  the  acquisition  of  negotiable  paper  merely 
credits  the  tranferror  with  the  amount  agreed  upon. 


690  NEGOTIABLE  PAPER 

Mr.  Justice  Wilkin  :    il*     *     * 

"We  think  the  authorities  fully  sustain  the  proposition 
that  a  bank  does  not  become  a  purchaser  of  negotiable 
paper  by  discounting  the  same  for  one  not  indebted  to  it 
at  the  time,  and  merely  placing  the  amount  wfhich  the 
assignor  is  to  receive  to  his  credit  by  way  of  deposit.  It 
is  well  understood  that  by  a  general  deposit  in  bank  the 
relation  of  debtor  and  creditor,  merely,  is  created  between 
the  bank  and  depositor;  and  if  in  this  case  the  bank 
became  such  a  debtor  to  the  rubber  company,  and  if  that 
indebtedness  continued  to  exist  at  the  time  of  the  trial,  it 
could  have  protected  itself,  if  the  defenses  set  up  pre- 
vailed against  the  notes,  by  refusing  to  pay  the  deposit, 
and  therefore  could  not  claim  the  protection  of  being  an 
innocent  holder  for  value,  or  if  it  had  paid  any  part  of  the 
deposit  it  would  be  entitled  to  protection  pro  tanto." 

Question  468:  State  the  question  that  arose  in  this  case  and 
the  Court's  decision. 

Sec.  330.   To  Be  a  Holder  in  Due  Course  One  Must  Acquire 
Title  in  Good  Faith  (Without  Notice). 

Case  No.  469.     Bradwell  v.  Pryor,  221  Illinois,  602. 

Point  Involved:  Whether  one  who  acquires  negotiable 
paper  under  circumstances  that  would  excite  suspicions 
in  the  mind  of  a  prudent  man,  is  a  holder  in  due  course. 

Mr.  Justice  Wilkin:  "It  is  first  insisted  that  the 
Appellate  Court  committed  error  in  holding  that  where  a 
party  is  about  to  receive  a  bill  or  note,  and  there  are  such 
suspicious  circumstances  accompanying  the  transaction 
or  within  the  knowledge  of  the  party  as  would  induce  a 
prudent  man  to  inquire  into  the  title  of  the  holder  or  into 
the  consideration  of  the  paper,  he  is  bound  to  make  such 
inquiry,  and  if  he  neglects  to  do  so  he  holds  the  bill  or 
note  subject  to  any  equities  which  may  exist  between  the 
previous  parties.  The  above  holding  of  the  Appellate 
Court  is  based  on  the  cases  of  Russell  v.  Hadduck,  3  Gilm. 


WHO  IS  HOLDER  IN  DUE  COURSE  691 

233,  and  Sturges  v.  Metropolitan  Nat.  Bank,  49  111.  220, 
and  is  undoubtedly  supported  by  these  authorities.  But 
since  the  holding  in  those  cases  the  rule  has  been  some- 
what modified  by  the  decisions  of  this  Court  and  is  not 
sustained  by  courts  generally  throughout  the  country. 
The  rule  now  is,  that  the  endorsee  or  assignee  of  com- 
mercial paper  who  takes  the  same  before  maturity  for  a 
valuable  consideration,  without  knowledge  of  any  defects 
and  in  good  faith,  will  be  protected  against  the  defenses 
of  the  maker,  and  mere  suspicion  of  defect  of  title  or  the 
knowledge  of  circumstances  calculated  to  excite  suspicion 
in  the  mind  of  a  prudent  man,  or  even  gross  negligence 
on  his  part  at  the  time  of  the  transfer,  will  not  defeat 
his  title.  In  other  words,  the  only  thing  which  will  defeat 
his  title  is  bad  faith  on  his  part,  and  the  burden  of  proof 
is  upon  the  person  assailing  his  right  to  establish  that 
fact  by  a  preponderance  of  the  evidence.  (Matson  v. 
Alley,  141  111.  284;  Demis  v.  Horner,  165  id.  347;  Merritt 
v.  Boyden,  191  id.  136 ;  Murray  v.  Beckwith,  81  id.  43 ; 
Shreeves  v.  Allen,  79  id.  553.)  However  harsh  this  rule 
may,  on  first  impression,  seem  to  be,  it  is  based  upon  the 
policy  of  the  law  which  gives  full  faith  and  credit  to  com- 
mercial paper  transferred  before  maturity,  so  that  it  may 
circulate,  as  far  as  possible,  with  all  the  conveniences  of 
currency.  We  are  of  the  opinion,  therefore,  that  the 
Appellate  Court  improperly  announced  in  its  opinion,  as 
the  law  of  this  state,  the  rule  laid  down  in  the  earlier 
cases  of  Russell  v.  Hadduck,  and  of  Sturges  v.  Metropoli- 
tan Nat.  Bank,  supra." 

Question  469 :    State  the  rule  announced  in  this  case. 

Case  No.  470.    McNamara  v.  Jose,  28  Washington,  461. 

Facts:  McNamara  bought  for  $500.00  a  promissory 
note  for  $1,000.00  from  the  payee  thereof,  made  by  Alfred 
Jose,  the  defendant.  The  maker  was  known  by  the  pur- 
chaser to  be  solvent,  but  the  note  though  held  in  Wash- 
ington, was  payable  at  Nome,  Alaska,  inaccessible  for  six 
months  in  a  year,  and  the  note  was  not  due  for  three 
months,  and  the  payee  was  in  need  of  money.    The  note 


692  NEGOTIABLE  PAPER 

had  been  procured  by  payee  from  the  maker  through 
fraudulent  representations.  The  maker  had  advertised 
his  defense  to  the  note,  but  the  purchaser  was  unaware  of 
this.  The  purchaser  did  not  inquire  of  the  maker  as  to 
the  note,  though  such  maker  was  conveniently  accessible. 
The  maker,  defendant  in  this  case,  claims  that  the  plain- 
tiff cannot  be  considered  an  innocent  purchaser. 

Point  Involved:  Whether  one  who  is  offered  paper  at 
a  discount  is  thereby  put  on  notice  of  the  defect  in  the 
title. 

Fullerton,  J. :  '  *  The  Negotiable  Instruments  Act  of 
this  state  (Laws  1899,  p.  350,  52)  defines  a  holder  in  due 
course  of  a  negotiable  instrument  to  be  one  who  has  taken 
the  instrument  under  the  following  conditions : 

"  '(1)  That  it  is  complete  and  regular  upon  its  face; 
(2)  that  he  became  the  holder  of  it  before  it  was  over- 
due, and  without  notice  that  it  had  been  previously  dis- 
honored, if  such  was  the  fact;  (3)  that  he  took  it  in  good 
faith  and  for  value ;  (4)  that  at  the  time  it  was  negotiated 
to  him  he  had  no  notice  of  any  infirmity  in  the  instrument 
or  defect  in  the  title  of  the  person  negotiating  it. 9. 

"The  act  further  provides  (Id.  56)  that,  'to  constitute 
notice  of  an  infirmity  in  the  instrument  or  defect  in  the 
title  of  the  person  negotiating  the  same,  the  person  to 
whom  it  is  negotiated  must  have  had  actual  knowledge 
of  the  infirmity  or  defect,  or  knowledge  of  such  facts  that 
his  action  in  taking  the  instrument  amounted  to  bad 
faith ;'  and  (Id.  57),  that  'a  holder  in  due  course  holds  the 
instrument  free  from  any  defect  of  title  of  prior  parties, 
and  free  from  defenses  available  to  prior  parties  among 
themselves,  and  may  enforce  payment  of  the  instrument 
for  the  full  amount  thereof  against  all  parties  liable  there- 
on.' But,  notwithstanding  this  act  positively  provides 
that,  to  constitute  notice  of  an  infirmity  in  a  negotiable 
instrument,  the  purchaser  must  have  knowledge  of  such 
facts  that  his  action  in  taking  the  instrument  amounted  to 
bad  faith,  we  cannot  think  that  the  legislature  meant  to 
say  that  the  purchaser  of  a  negotiable  instrument  can  shut 


WHO  IS  HOLDER  IN  DUE  COURSE  693 

his  eyes  to  the  surrounding  circumstances,  remain  in 
willful  ignorance  of  facts  which  would  have  made  known 
to  him  the  infirmities  of  the  instrument  he  purchases,  and 
then  claim,  because  he  had  no  actual  knowledge  of  such 
infirmities,  that  his  title  thereto  is  unimpeachable;  but 
that  it  is  still  the  rule  that  willful  ignorance  and  guilty 
knowledge  alike  involve  the  result  of  bad  faith.  This, 
however,  does  not  mean  that  the  holder's  title  is  to  be 
overthrown  by  slight  circumstances.  He  does  not  owe  to 
the  party  who  puts  the  paper  afloat  the  duty  of  active 
inquiry  in  order  to  avert  the  imputation  of  bad  faith. 
His  rights  are  to  be  determined  by  the  simple  test  of 
honesty  and  good  faith,  not  by  a  speculative  inquiry  into 
diligence  or  negligence.  Although  he  may  have  been 
negligent  in  taking  the  paper,  and  omitted  precautions 
which  a  prudent  man  would  have  taken,  nevertheless; 
unless  he  acted  mala  fide,  his  title  will  prevail.  Crawford, 
Negotiable  Instruments  Law  (2d  ed.),  p.  54. 

"  'Suspicion  of  defect  of  title  or  the  knowledge  of  cir- 
cumstances which  would  excite  suspicion  in  the  mind  of  a 
prudent  man,  or  gross  negligence  on  the  part  of  the  taker, 
at  the  time  of  the  transfer,  will  not  defeat  his  title.  That 
result  can  be  produced  only  by  bad  faith  on  his  part.' 
Murray  v.  Lardner,  2  Wall.  110. 

"Tested  by  these  rules,  is  there  anything  in  the  evi- 
dence before  us,  which  required  the  submission  of  the 
cause  to  the  jury!  We  think  not.  Laying  aside  the  fact 
that  it  was  purchased  at  such  a  large  discount  there  is 
nothing  that  even  tends  to  show  bad  faith  on  the  part  of 
the  appellant,  and  this  one  fact  loses  much  of  its  per- 
suasiveness when  it  is  remembered  that  the  note  is  pay- 
able at  Cape  Nome,  which  the  Court  judicially  knows  is 
on  the  coast  of  Alaska,  inaccessible  for  a  greater  portion 
of  the  year,  and  not  at  any  time  in  the  line  of  regular 
communication.  It  certainly  would  not  be  sought  by 
investors  in  commercial  paper  so  long  as  there  was  a 
possibility  of  their  being  compelled  to  enforce  its  pay- 
ment at  that  place.  Again,  the  purchaser  of  a  note  at  a 
discount  is  not  of  itself,  under  ordinary  circumstances 


694  NEGOTIABLE  PAPER 

evidence  of  bad  faith.  When  it  is  very  large,  that  cir- 
cumstance may  be  considered  in  connection  with  other 
circumstances  in  determining  the  question  of  the  purchas- 
er's  good  faith;  but  unless  the  consideration  be  merely 
nominal,  or  so  grossly  inadequate  as  to  lead  to  the  con- 
clusion that  the  purchase  is  made  for  the  purposes  of 
speculating  upon  the  chances  of  collection,  it  is  not  of 
itself  sufficient  to  justify  a  finding  of  bad  faith. ' ' 

Question  470:  State  the  facts,  the  question  presented  and 
the  Court's  decision. 

Case  No.  471.    Becker  v.  Hart,  120  N.  Y.  Supp.  270. 
Facts:    The  facts  appear  in  the  opinion. 
Point  Involved:    The  circumstances  that  put  one  on 
notice  or  show  that  he  actually  had  notice. 

Hieschbeeg,  P.  J.:  "The  promissory  note  on  which 
the  plaintiff  sues  was  made  and  delivered  by  the  defend- 
ants to  one  C.  C.  Murphy,  and  by  the  latter  delivered, 
three  or  four  weeks  after  its  date,  to  David  Levy.  It  was 
dated  October  5,  1903,  and  was  payable  in  the  sum  of 
$1,825,  on  December  5,  1903,  at  the  Twelfth  Ward  Bank. 
It  is  conceded  that  the  makers,  the  defendants,  were 
then,  and  at  all  times  since  have  been,  abundantly 
responsible;  but  Murphy  demanded  and  received  an 
indorsement  by  a  person  named  Harlam,  also  presumed 
responsible.  The  defendants  made  payment  to  Levy  on 
the  note  at  different  times  until  they  paid  it  off.  Some,  if 
not  all,  of  these  payments  were  made  after  the  maturity 
of  the  note.  The  note  was  not  produced  when  these  pay- 
ments were  made;  Levy  claiming  that  the  plaintiff's  son, 
Charles  H.  Becker,  who  was  in  his  employ,  had  lost  or 
mislaid  the  note  and  it  could  not  be  found.  The  statement 
that  the  note  had  been  lost  or  mislaid  was  made  in 
Charles  H.  Becker's  presence.  Levy  died  in  the  month  of 
April  or  May,  1904,  and  about  two  years  thereafter  the 
plaintiff  first  made  claim  to  be  owner  of  the  note,  assert- 
ing that  she  had  bought  it  from  Levy  through  the  agency 


WHO  IS  HOLDER  IN  DUE  COURSE  695 

of  her  son,  Charles  H.,  and  she  then  instituted  this  action 
for  the  recovery  of  the  amount  for  which  it  was  given. 
The  note  was  never  protested,  and  it  does  not  appear  that 
the  plaintiff  even  required  Levy  to  indorse  it  at  the  time 
she  claims  to  have  bought  it  from  him.  The  learned  trial 
Court  submitted  three  questions  to  the  jury :  First,  did 
the  plaintiff  become  the  holder  of  the  note  before  matu- 
rity? To  this  question  the  jury  answered,  'no.'  Second, 
did  the  plaintiff  pay  anything  for  the  note?  To  which 
the  jury  answered,  'no.'  Third,  did  the  plaintiff,  at  or 
before  she  became  the  holder,  have  any  notice  of  any 
infirmity  or  defect  in  the  title  of  the  prior  holder, 
Charles  Becker,  or  knowledge  of  such  facts  that  her  acts 
in  taking  the  instrument  amounted  to  bad  faith!  To 
which  question  the  jury  answered,  'yes.'  The  jury  found 
further  that  the  note  was  in  fact  paid  in  full  by  the  defend- 
ants, and  the  learned  Court  thereupon  directed  a  verdict 
and  judgment  for  the  plaintiff. 

"There  are  many  facts  and  circumstances  connected 
with  the  plaintiff's  alleged  ownership  of  the  note  which 
tend  to  make  such  ownership  a  proper  consideration  for 
the  determination  of  a  jury,  and  the  Court  could  not  dis- 
pose of  the  case  as  involving  a  question  of  law.  While 
the  transaction  to  which  the  plaintiff  and  her  son  testify 
might,  perhaps,  possibly  be  true,  it  nevertheless  differs 
from  the  usual  and  ordinary  commercial  transactions  in 
so  many  particulars  as  to  present  an  issue  of  fact,  aside 
from  any  question  as  to  the  credibility  of  witnesses.  The 
purchase  of  the  note  was  the  only  transaction  of  the  kind 
in  which  the  plaintiff  had  ever  engaged.  She  claims  to 
have  bought  the  note  at  the  solicitation  of  her  son  in  the 
middle  or  latter  part  of  October,  1903,  and  to  have  paid 
for  it  only  the  sum  of  $1,000.  The  claim  is  made  that 
Levy  needed  money  at  the  time  and  was  willing  to  suffer 
the  enormous  loss  suggested  for  the  sake  of  getting  ready 
cash.  There  is  nothing  in  the  case  to  indicate  why  he 
should  not  have  applied  to  the  makers  for  the  payment  of 
the  note  at  a  satisfactory  discount,  or  why  he  could  not 
have  procured  a  discount  at  the  bank  at  the  usual  rate. 


696  NEGOTIABLE  PAPER 

The  plaintiff  claims  that  the  payment  for  the  note  was 
made  with  bank  bills  which  she  had  kept  for  fifteen  or 
twenty  years  in  a  tin  box  in  her  house.  It  appeared,  how- 
ever, that  during  that  same  time  she  had  an  account  in 
the  Brooklyn  Savings  Bank  in  her  own  name,  which  was 
opened  in  1891  with  a  deposit  of  $800,  and  from  which 
she  had  drawn  small  sums  from  time  to  time  until  she 
had  reduced  the  account  at  the  time  of  the  trial  to  the  sum 
of  $75.48.  When  confronted  with  this  account  at  the  trial, 
she  volunteered  the  statement  that  it  represented  money 
for  her  children;  but  it  appeared  that  on  examination 
before  trial  she  testified  to  the  existence  of  the  account 
without  this  qualification.  The  note  was  not  protested 
against  the  indorser,  although  the  complaint  alleges  that 
it  was,  and  no  explanation  was  made  why  it  was  not  pro- 
tested, nor  can  any  good  reason  be  suggested,  unless  it  be 
because  Levy  was  still  living  at  the  time  of  the  maturity 
of  the  note.  « 

''Were  there  no  other  unusual  or  suspicious  circum- 
stances in  the  case  than  a  claim  to  the  purchase  of  an 
unquestionably  good  note,  having  less  than  six  weeks  to 
run,  for  but  a  little  more  than  one-half  of  its  face  value, 
that  fact  alone  would  have  required  a  submission  of  the 
case  to  the  jury.  While  it  is  undoubtedly  true  that  a  valid 
purchase  of  a  note  may  be  made  for  less  than  its  value, 
the  discrepancy  may  be  large  enough  to  indicate  falsity 
and  bad  faith.  'As  a  general  proposition  it  may  be  said 
that  the  amount  paid  is  otherwise  unimportant  than  as 
evidence  to  be  considered  by  the  jury  upon  the  question 
of  bona  fides/  American  and  English  Encyclopedia  of 
Law,  vol.  4  (2d  Ed.),  p.  283.  In  Canajoharie  National 
Bank  v.  Diefendorf ,  123  N.  Y.  191, 25  N.  E.  402, 10  L.-R.  A. 
676,  it  was  held  that  the  holders  of  negotiable  paper  are 
only  entitled  to  the  benefit  of  the  rule  of  the  commercial 
law  which  forbids  its  validity  being  questioned,  when 
they  have  purchased  such  paper  in  good  faith,  in  the 
usual  course  of  business  before  maturity,  and  for  full 
value.  In  Second  National  Bank  v.  Weston,  172  N.  Y.  250, 
257,  64  N.  E.  949,  951,  the  Court  said : 


WHO  IS  HOLDER  IN  DUE  COURSE  697 

"  'The  discount  taken  may  be  so  great  as  to  impeach 
the  good  faith  of  the  purchaser,  the  same  as  chattel  may- 
be bought  at  so  much  under  its  true  value  as  to  justify 
the  inference  that  the  purchaser  knew  or  suspected  that 
it  had  been  dishonestly  acquired  by  his  vendor.  Hall  v. 
Wilson  (16  Barb.  548)  has  been  cited  in  several  late  cases, 
but  an  examination  of  those  cases  will  show  that  there 
the  rate  of  discount  was  so  excessive  as  to  warrant  the 
inference  of  bad  faith.  In  Canajoharie  Nat.  Bank  v. 
Diefendorf,  supra,  the  notes  of  a  perfectly  responsible 
maker  were  purchased  at  a  discount  of  from  15  to  18  per 
cent,  from  their  face  value.  In  Vosburgh  v.  Diefendorf, 
119  N.  Y.  357  (23  N.  E.  801, 16  Am.  St.  Eep.  836),  the  notes 
of  the  same  maker  were  purchased  for  50  per  cent,  of  their 
face  value.' 

1 '  In  the  case  then  under  consideration  by  the  Court  of 
Appeals,  the  rate  of  discount  was  only  8  per  cent.,  and 
the  Court  held  that  it  was  not  sufficiently  great  to  predi- 
cate upon  it  any  inference  of  bad  faith.  The  rule,  how- 
ever, was  not  doubted  that  a  discount  might  be  large 
enough  to  predicate  such  inference  upon;  and  it  seems 
to  me  that  in  this  case  the  discount  of  over  45  per  cent, 
was  of  itself  sufficient  to  take  the  case  to  the  jury.  When 
to  this  great  deduction  in  the  price  of  the  alleged  pur- 
chase is  added  the  further  facts  that  the  purchase  was 
made  as  an  isolated  transaction,  that  the  sum  of  money 
alleged  to  have  been  paid  for  the  purchase  has  been  kept 
uninvested  by  a  woman  of  scanty  means  for  a  period  of 
fifteen  or  twenty  years,  notwithstanding  that  during  those 
years  she  kept  a  savings  bank  account,  that  parties 
responsible  for  the  debt  were  released  by  lack  of  protest 
for  no  reason  which  can  be  assigned,  and  that  the  pur- 
chase was  concealed  until  after  the  death  of  the  only 
individual  who  could  successfully  challenge  its  validity, 
the  transaction  must  certainly  be  regarded  as  sufficiently 
unusual  and  suspicious,  and  at  least  so  far  inherently 
improbable,  as  to  raise  an  issue  of  fact  for  the  decision  of 
a  jury.    The  judgment  and  order  should  be  reversed.' ' 

Question  471 :  Summarize  briefly  the  facts  in  this  case,  state 
the  question  presented  and  what  the  Court  decided. 


698  NEGOTIABLE  PAPER 

Sec.  331.    A  Purchaser  from  a  Holder  in  Due  Course  Is  a 
Holder  in  Due  Course. 

Case  No.  472.  Woodworth  et  al.  v.  Huntoon  et  al.,  40 
111.  131. 

Facts:  Purchase  of  a  note  negotiable  in  form,  but  past 
due,  from  an  indorsee  thereof,  who  acquired  it  before 
maturity.  Defense  that  the  note  was  in  fact  (though  not 
in  form)  usurious. 

Point  Involved:  Whether  one  who  purchases  under 
circumstances  (as  after  maturity)  which  would  prevent 
him  from  being  a  holder  in  due  course  if  he  purchased 
from  one  subject  to  defenses,  but  who  takes  from  a  holder 
in  due  course,  takes  the  title  of  his  transferror. 

Chief  Justice  Walkek:  "•  *  *  A  note,  tainted 
with  fraud  or  other  infirmity,  passing  into  the  hands  of 
an  innocent  purchaser,  not  chargeable  with  notice,  and 
for  a  valuable  consideration,  he  acquires  it  purged  of  the 
defense,  and  any  other  person  acquiring  it  of  him  suc- 
ceeds to  his  rights  in  the  same  condition  he  held  them. 
A  defense  to  the  instrument  in  the  hands  of  the  original 
holder,  having  been  thus  cut  off,  is  not  revived  by  the  note 
being  again.transf  erred.    #     *     *" 

Question  472:  (1.)  State  the  facts,  the  question  presented 
and  the  Court 's  decision  in  this  case. 

(2.)  A  made  a  note  payable  to  B  or  order  and  acquired  by 
B  through  fraud.  B  sold  to  C,  a  holder  in  due  course.  C 
negotiated  the  note  to  D,  who  acquired  the  instrument  after  its 
maturity,  who  gave  no  value,  and  who  had  notice  of  the  fraud. 
Can  D  enforce  this  note  against  A? 

Case  No.  473.  Andrews  et  al.  v.  Robertson,  111  Wise. 
334. 

Facts:  The  payee  of  the  paper  sued  on  was  subject  to 
the  defense  of  fraud.  He  transferred  to  another  who 
was  a  holder  in  due  course,  and  then  re-acquired  it. 

Point  Involved:  Whether  such  a  party  could  invoke 
the  rule  in  favor  of  purchaser  from  a  holder  in  due  course 


WHO  IS  HOLDER  IN  DUE  COURSE  699 

if  he  was  formerly  a  holder  against  whom  such  defense 
would  have  been  available. 


Marshall,  J.:  "*  *  *  The  further  claim  is  made 
that  the  plaintiffs  are  bona  fide  holders  of  the  paper 
because  they  purchased  it  from  their  indorsee,  who  was 
an  innocent  holder  thereof,  paying  full  value  therefor, 
and  that  the  trial  Court  erred  in  refusing  to  permit  proof 
of  such  repurchase  for  value.  In  that,  they  invoke  the 
familiar  common-law  rule,  which  has  recently  been  added 
to  the  statute  law  of  the  state,  Sec.  1676-28,  ch.  356,  Laws 
of  1899,  that  the  holder  of  commercial  paper  may  recover 
on  the  strength  of  the  title  of  a  precedent  innocent  holder, 
regardless  of  knowledge  on  his  part  of  fraud  which  would 
defeat  it  in  the  hands  of  the  payee  named  therein.  Ver- 
beck  v.  Scott,  71  Wis.  59,  64.  That  rule  is  stated  in  the 
books,  particularly  in  judicial  opinions,  generally  in  such 
a  way  as  to  lead  one  astray  who  is  not  familiar  with  the 
law  on  the  subject,  as  to  the  extent  of  its  application.  It 
is  not  a  universal  rule.  It  does  not  apply  to  a  case  like 
this,  where  the  payee  of  the  paper,  being  so  circumstanced 
at  the  start  that  he  cannot  recover  thereon,  transfers  it 
to  an  innocent  third  party  for  value  and  subsequently 
purchases  it  back  for  value.  Under  such  circumstances 
the  payee  cannot  lean  for  support  on  the  innocence  of  his 
vendee.  His  position  is  the  same  when  he  comes  into  pos- 
session of  the  paper  the  second  time  as  when  he  first  pos- 
sessed it.  One  would  say  that  must  be  the  law  without 
reference  to  authority ;  otherwise  a  person  might  become 
possessed  of  a  promissory  note  of  another  by  the  grossest 
of  frauds  and  by  selling  it  to  an  innocent  third  person  for 
value  and  subsequently  repurchasing  it  enforce  the  same 
against  the  maker.  The  law  contains  no  such  open  door 
as  that  for  the  successful  perpetration  of  fraud.    *    *    *" 

Question  473:  How  did  this  case  differ  in  fact  from  the 
one  just  preceding?  Did  this  difference  in  fact  produce  a  dif- 
ferent outcome?    Why? 


700  NEGOTIABLE  PAPER 

Sec.  332.    Amount  Recoverable  by  Holder  in  Due  Course. 

Case  No.  474.  Cromwell  v.  County  of  Sac,  96  United 
States,  51. 

Point  Involved:  Whether  a  purchaser  for  value  is,  in 
the  case  of  defense  made  by  the  party  liable,  to  be  limited 
in  his  recovery  to  the  amount  paid  by  him. 

Mr.  Justice  Field  :  ' '  The  plaintiff,  therefore,  holds  the 
bonds  and  the  subsequent  coupons  as  his  vendor  held 
them,  freed  from  all  infirmities  attending  their  original 
issue.  Nor  is  he  limited  in  his  recovery  upon  them,  or 
upon  the  other  two  bonds,  as  contended  by  counsel  for 
the  county,  to  the  amount  he  paid  his  vendor.  Clark  had 
given  full  value  for  those  he  purchased,  and  could  have 
recovered  their  amount  from  the  county,  and  his  right 
passed  to  his  vendee.  But  independently  of  the  fact  of 
such  full  payment,  we  are  of  the  opinion  that  a  purchaser 
of  a  negotiable  security  before  maturity,  in  cases  where 
he  is  not  personally  chargeable  with  fraud,  is  entitled  to 
recover  its  full  amount  against  the  maker,  though  he  may 
have  paid  less  than  its  par  value,  whatever  may  have 
been  its  original  infirmity.  We  are  aware  of  numerous 
decisions  in  conflict  with  this  view  of  the  law;  but  we 
think  the  sounder  rule,  and  the  one  in  consonance  with  the 
common  understanding  and  usage  of  commerce,  is  that 
the  purchaser,  at  whatever  price,  takes  the  benefit  of  the 
entire  obligation  of  the  maker.  Public  securities,  and 
those  of  private  corporations,  are  constantly  fluctuating 
in  price  in  the  market,  one  day  being  above  par  and  the 
next  below  it,  and  often  passing  within  short  periods  from 
one-half  of  their  nominal  to  their  full  value.  Indeed,  all 
sales  of  such  securities  are  made  with  reference  to  prices 
current  in  the  market,  and  not  with  reference  to  their  par 
value.  It  would  introduce,  therefore,  inconceivable  con- 
fusion if  bona  fide  purchasers  in  the  market  were 
restricted  in  their  claims  upon  such  securities  to  the  sums 
they  had  paid  for  them.  This  rule  in  no  respect  impinges 
upon  the  doctrine  that  one  who  makes  only  a  loan  upon 


WHO  IS  HOLDER  IN  DUE  COURSE  701 

such  paper,  or  takes  it  as  collateral  security  for  a  prece- 
dent debt,  may  be  limited  in  his  recovery  to  the  amount 
advanced  or  secured." 

Question  474:  State  the  question  presented  and  the  Court's 
decision. 

Case  No.  475.  Jefferson  Bank  v.  C.  W.  L.  Co.,  123  S. 
W.  (Tenn.)  641. 

Point  Involved:  Same  as  in  above  case.  Construction 
of  Negotiable  Instruments  Act. 

Facts:  Suit  on  a  note  acquired  by  the  plaintiff,  Jeffer- 
son Bank,  as  indorsees  of  the  payee,  against  the  makers, 
the  Chapman- White-Lyons  Co. 

Defense:  That  the  note  was  executed  by  the  defend- 
ant's vice-president  in  the  company's  name  for  unauthor- 
ized purposes,  and  secured  by  the  payee  with  knowledge 
thereof  and  by  fraud  and  without  consideration.  Defense, 
also,  that  the  plaintiffs  acquired  the  note  at  a  discount 
and  ought  not  in  any  event  to  recover  more  than  it  paid 
for  it. 

McAllister,  J. :  '  *  *  *  *  It  is  said,  however,  *  *  * 
that  in  no  event  is  the  complainant  entitled  to  recover 
exceeding  the  amount  it  paid  for  the  note,  with  interest. 
It  appears  the  decree  below  was  for  the  full  amount  it 
paid  for  said  note  with  interest  and  attorney's  fees 
*  *  *.  But  we  are  of  opinion  that  this  question  is  now 
settled  by  Sec.  57  of  the  Negotiable  Instruments  Law 
which  provides  that  the  innocent  holder  may  enforce  pay- 
ment of  the  instrument  for  the  full  amount  thereof  against 
all  parties  liable  thereon.' ' 

Question  475:    State  this  case. 


CHAPTER    SIXTY 

DEFENSES  NOT  AVAILABLE  AGAINST  A  HOLDER 
IN  DUE  COURSE  (PERSONAL  DEFENSES) 

(Note:  These  defenses  are  the  defenses  of  a  usual 
sort.) 

§  333.  Payment  before  maturity.  §  339.  Theft  and  lack  of  delivery  of 
§  334.  Set-off.  instrument       payable       to 

§  335.  Want  or  failure  of  considera-  bearer     or     properly     en- 

tion.  dorsed. 

§  336.  Fraud  in  consideration.  §  340.  Lack  of  authority  to  execute 
§  337.  Duress.  instrument. 

§  338.  Illegality. 

Sec.  333.    Payment  Before  Maturity. 

Case  No.  476.  Wilcox,  Gibbs  &  Co.  v.  Aultman,  64 
Georgia,  544. 

Facts:    The  facts  are  given  in  the  opinion. 

Point  Involved:  Whether  payment  before  maturity  is 
a  good  defense  against  a  holder  in  due  course. 

Warner,  Ch.  J. :  ' '  This  was  an  action  brought  by  the 
plaintiffs  against  the  defendant  on  a  draft  drawn  by 
him  upon  Messrs.  Adams  &  Bareymore,  payable  to  his 
own  order,  and  endorsed  by  himself,  for  the  sum  of 
$88.70,  dated  January  20,  1870,  and  due  on  the  6th  day 
of  November  thereafter,  *  *  *.  The  defendant 
pleaded  payment.     *     *     * 

"It  appears  from  the  evidence  *  *  *  that  the 
plaintiffs  became  the  bona  fide  holders  of  the  draft  before 
its  maturity  for  a  valuable  consideration,    #     *     *    re- 

702 


PERSONAL  DEFENSES  703 

ceiving  the  same  from  Lloyd  &  Sons.  The  defendant 
testified  that  in  the  fall  of  1870  he  paid  the  draft  to  Lloyd 
&  Sons,  who  told  him  that  they  did  not  have  it  but  would 
get  it  and  send  him  a  receipt  in  three  days,  and  gave  de- 
fendant a  receipt  in  full  payment  of  the  draft. 

"*  *  *  when  the  maker  of  a  negotiable  draft  or 
note  pays  it  to  one  who  has  not  the  possession  of  the  pa- 
per at  the  time  of  such  payment,  so  as  to  enable  him  to 
take  it  up,  but  takes  a  receipt  for  the  money  so  paid  in- 
stead of  taking  up  his  draft  or  note,  such  receipt  will  not 
protect  him  from  the  payment  of  the  draft  or  note,  when 
sued  by  a  bona  fide  holder  thereof  before  due.     *     *     *. " 

Question  476:  State  the  facts,  the  question  presented  and  the 
Court 's  decision  in  this  case. 

Sec.  334.    Set-off. 

(Note :  Any  set-off  that  the  party  liable  might  have  had  against 
the  transferror  cannot  be  set  up  against  a  holder  in  due  course. ) 

Sec.  335.    Want  or  Failure  of  Consideration. 

Case  No.  477.    First  Nat.  Bk.  v.  Skeen,  101  Mo.  683. 
Facts :    Suit  on  a  note  reading  as  follows : 

"$417.00.  Holden,  Mo.,  July  7, 1884. 

"For  value  received,  on  or  before  the  first  day  of  Sep- 
tember, 1885,  the  undersigned  promise  to  pay  to  the  or- 
der of  the  Springfield  Engine  &  Thresher  Company,  four 
hundred  and  seventeen  dollars,  payable  at  Farmers '  and 
Commercial  Bank,  Holden,  Mo.,  with  interest  at  eight 
per  cent,  from  date  until  due,  and  ten  per  cent,  after  due. 

J.  W.  F.  Fauchee, 
W.  A.  Skeen." 

The  pleadings  set  up  that  plaintiff  was  a  purchaser 
for  value  before  maturity  by  indorsement  from  the 
payees.  Defendant  offered  evidence  tending  to  show 
that  the  note  was  given  for  machinery  on  a  contract  of 


704  NEGOTIABLE  PAPER 

sale  containing  a  warranty  and  that  the  consideration 
for  which  the  note  was  given  had  failed. 

Point  Involved:  Whether  failure  of  consideration  can 
be  set  up  against  a  holder  in  due  course. 

Barclay,  J. :  (First  deciding,  in  an  illuminating  opin- 
ion, that  a  note  payable  "on  or  before"  a  certain  date  is 
negotiable.) 

1 '  The  decision  of  the  foregoing  point  leaves  little  fur- 
ther to  be  said.  Under  the  pleadings,  the  execution  of 
the  note  and  its  transfer  to  plaintiff  were  admitted. 
When  the  latter  produced  the  note,  it  amounted  to  evi- 
dence tending  to  prove  that  it  had  been  acquired  before 
maturity  and  for  value.  When  plaintiff  rested,  defend- 
ant by  his  own  evidence  established  that  plaintiff  had 
purchased  the  note,  without  notice  of  any  failure  of  con- 
sideration, before  maturity.  Thereafter,  defendant's 
offer  to  prove  the  failure  of  consideration,  was  properly 
rejected.  It  was  irrelevant  to  the  issues  made  by  the 
pleadings,  in  view  of  the  facts  already  before  the  Court, 
as  disclosed  by  the  proofs  of  both  parties.  In  that  state 
of  the  case,  the  Court  correctly  directed  the  jury  to  re- 
turn a  verdict  for  plaintiff  on  the  undisputed  facts." 

Question  477 :  Can  failure  or  want  of  consideration  be  set 
up  against  a  holder  in  due  course  ? 

Sec.  336.    Fraud  in  the  Consideration. 

Case  No.  478.    Grooms  v.  Olliff,  93  Georgia,  789. 

Facts:    They  are  stated  in  the  opinion. 

Point  Involved:  Whether  fraud  in  the  inducement  or 
consideration  for  which  the  note  was  given  is  a  good  de- 
fense against  a  holder  in  due  course.  The  difference 
between  this  fraud  and  "fraud  in  the  procurement." 

Lumpkin,  J. :  ' '  Olliffe  &  Co.  brought  suit  in  a  Justice 's 
Court  upon  a  promissory  note  signed  by  Grooms,  en- 
dorsed by  Outland  and  payable  to  Donaldson  or  bearer. 
The  defendants  pleaded  that  the  note  was  procured  by 


PERSONAL  DEFENSES  705 

fraud,  for  that  it  was  given  for  the  purchase  of  a  mare 
sold  to  Grooms  by  one  Warters,  who  represented  that  the 
animal  was  perfectly  sound  in  every  respect,  when  in 
point  of  fact  she  was,  both  before  and  at  the  time  of  pur- 
chase diseased  and  totally  worthless,  all  of  which  was 
well  known  to  Warters,  who  fraudulently  made  the  rep- 
resentations above  mentioned  for  the  purpose  of  deceiv- 
ing Grooms  and  did  thus  deceive  him  into  making  and 
delivering  the  note  to  Donaldson.  [There  was  a  statute 
in  Georgia  making  "fraud  in  the  procurement"  a  good 
defense  against  every  one.  It  was  sought  to  make  this 
statute  of  avail  in  the  present  case.  The  Court  decides 
that  fraud  in  the  procurement  does  not  mean  the  fraud 
brought  out  in  this  case.]  We  feel  very  sure  that  the 
words  ("fraud  in  its  procurement")  were  not  intended 
to  apply  to  cases  of  deceit,  bad  faith,  or  false  representa- 
tions used  and  made  for  the  purpose  of  inducing  one  to 
enter  into  a  contract,  and  to  make  and  deliver  his  promis- 
sory note,  knowingly  and  intentionally  as  an  evidence  of 
the  same.  It  follows,  we  think,  that  fraud  in  these  re- 
spects does  not  affect  a  bona  fide  holder  for  value,  who 
obtains  a  negotiable  promissory  note  before  its  maturity, 
without  notice  of  any  defect  or  defense.  Such  holder  will 
be  protected,  even  though  the  note  was  entirely  without 
consideration,  and  was  given  as  a  result  of  the  basest 
fraud,  practiced  upon  the  maker  in  inducing  him  to  make 
the  contract  evidenced  by  the  note. ' '  , 

Question  478:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  What  sort  of  fraud  do  you  understand  the  Court  to 
have  meant  by  "fraud  in  the  procurement?"  Give  an  illus- 
tration. (See  Case  No.  33  and  Case  No.  484  for  examples  of 
fraud  in  the  procurement  [also  called  fraud  in  the  execution  or 
inception].) 

Sec.  337.    Duress. 

Case  No.  479.  Mack  v.  Prang,  79  N.  W.  770,  104 
Wis.  1. 


706  NEGOTIABLE  PAPER 

Facts:  A  wife  executed  her  note  and  a  mortgage  on 
her  separate  property  under  threats  of  criminal  prose- 
cution of  her  husband  for  embezzlement.  She  was  greatly 
alarmed  at  these  threats,  had  several  fainting  spells  and 
executed  the  note  to  save  her  husband  from  jail. 

Point  Involved:  Whether  duress  is  merely  a  personal 
defense  available  as  between  the  parties,  but  not  good  as 
against  a  holder  in  due  course. 

Winslow,  J. :  *  *  *  *  *  There  is  some  conflict  in 
the  authorities  upon  the  question  whether  the  defense  of 
duress  by  threats  can  be  successfully  urged  against  a 
bona  fide  holder  for  value  of  a  negotiable  paper,  but  the 
better  opinion  and  weight  of  authority,  is  that  such  de- 
fense stands  upon  the  same  footing  as  the  defenses  which 
may  be  made  as  between  the  original  parties,  but  is  cut 
off  when  the  paper  reaches  the  hands  of  a  bona  fide 
holder.  Fairbanks  v.  Snow,  145  Mass.  153, 13  N.  E.  596; 
Bank  v.  Butler,  48  Mich.  192, 12  N.  W.  36 ;  Clark  v.  Pease, 
41  N.  H.  414;  Beals  v.  Neddo,  1  McCrary,  206,  2  Fed.  41; 
Martineau  v.  McCollum,  3  Pin.  455,  4  Am.  &  Eng.  Ency. 
Law  (2d  Ed.)  p.  334.  Duress  which  consists  of  threats 
of  imprisonment  of  a  husband  or  child  is  a  species  of 
fraud,  which  renders  the  contract  made  under  its  influ- 
ence voidable  only  and  not  void.  Bank  v.  Kusworin,  91 
Wis.  166,  64  N.  W.  843.  If  it  be  simply  a  voidable  con- 
tract, then  it  follows  naturally  that,  when  the  contract 
consists  of  negotiable  paper,  the  defense  is  cut  off  by 
transfer  to  a  bona  fide  purchaser  before  maturity  in  the 
same  manner  that  other  defenses  upon  the  ground  of 
fraud  are  cut  off.     *     *     *" 

(Note :  The  Negotiable  Instruments  Law  makes  a  "duress"  a 
real  defense.  Whether  it  changes  the  law  as  to  all  sorts  of  duress 
is  still  a  question.) 

Question  479:  State  the  facts  in  this  case  and  whether  the 
defense  of  duress  can  be  made  as  against  a  holder  in  due  course. 


PERSONAL  DEFENSES  707 

Sec.  338.    Illegality. 

Case  No.  480.  Union  Trust  Co.  v.  Preston  National 
Bank,  136  Mich.  460. 

Facts:  The  question  was  whether  the  laws  of  Michi- 
gan making  it  unlawful  for  any  employe  of  a  bank  to 
certify  a  check  unless  the  amount  thereof  actually  stood 
to  the  credit  of  the  drawer,  made  such  check  void  in  the 
hands  of  an  innocent  purchaser  for  value. 

Point  Involved:  Whether  a  negotiable  instrument  is- 
sued in  breach  of  the  positive  statutory  law  making  the 
act  illegal,  is  enforceable  in  the  hands  of  a  holder  in  due 
course. 

Carpenter,  J.:  "*  *  *  In  accordance  with  these 
principles,  we  would  assume,  and,  as  heretofore  stated, 
we  do  assume,  that  the  legislature  intended  to  make  such 
contract  void  between  the  parties ;  and  we  would  likewise 
assume  that  it  did  not  intend,  if  the  contract  took  the 
form  of  negotiable  paper,  to  affect  its  validity  in  the 
hands  of  a  bona  fide  holder.  But  plaintiff's  counsel  con- 
tend that  it  is  settled  by  authority  that,  when  a  contract 
is  prohibited  and  made  a  crime  by  statute,  such  a  con- 
tract, if  it  takes  the  form  of  negotiable  paper,  is  void  in 
the  hands  of  a  bona  fide  holder;  and  they  rely  upon  the 
following  authorities:     *     *     * 

1 1  #  #  *  The  decisions  referred  to  do  not  sustain  the 
proposition  for  which  they  are  cited.  The  section  of 
Daniel  cited  has  reference  to  cases  where  an  express 
statutory  provision  declares  a  note  void.  We  cannot  fol- 
low this  authority  without  repudiating  our  own  decision 
of  Vinton  v.  Peck,  14  Mich.  287,  and  the  almost  unanimous 
authority  of  other  courts,    *     *     * 

<<*  •  #  -^e  conciU(je,  therefore,  that,  though  the 
making  of  a  contract  is  prohibited  and  made  a  crime  by 
statute,  yet  that  contract,  if  it  takes  the  form  of  negotiable 

paper,  is  valid  in  the  hands  of  a  bona  fide  holder  for  value. 

#    #     # 

' 'If  the  section  is  construed  as  the  plaintiff  contends — 


708  NEGOTIABLE  PAPER 

if  checks  duly  certified  are  void  in  the  hands  of  bona  fide 
holders  for  value,  because  the  amount  thereof  did  not 
stand  to  the  credit  of  the  drawer  on  the  books  of  the 
bank — this  consequence  follows:  Certified  checks,  in- 
stead of  being,  as  heretofore,  the  negotiable  paper  of  the 
bank,  and  passing  as  current  upon  the  faith  of  the  bank's 
credit,  will  pass,  if  at  all,  only  upon  the  credit  of  the  par- 
ticular bank  official  who  certified  it.  Every  person  to 
whom  a  certified  check  is  offered  will  be  called  upon  to 
determine,  not  the  credit  of  the  certifying  bank,  not  the 
authority  of  the  certifying  official,  but  the  integrity  and 
diligence  of  that  official.  Though  one  may  have  all  con- 
fidence in  such  integrity  and  diligence,  he  may  hesitate  to 
take  the  check,  because  he  fears  that  others  to  whom  he 
may  wish  to  transfer  it  lack  such  confidence.  It  will  re- 
sult, therefore,  that  certified  checks,  instead  of  being 
regarded  in  commercial  circles  with  credit  and  favor,  as 
heretofore,  will  be  regarded  with  a  degree  of  suspicion, 
and  are  likely  to  be  discredited.  If  the  legislature  in- 
tended this  consequence — and  they  must  have  intended  it 
if  they  intended  that  the  act  should  receive  the  construc- 
tion contended  for  by  plaintiff — it  seems  strange  that 
they  left  their  intent  to  be  ascertained  as  a  matter  of 
doubtful  inference;  it  seems  strange  that  they  still  left 
to  banks  the  power  of  certifying  checks,  without  any  clear 
suggestion  that  such  power  was  so  greatly  limited.  'If 
the  legislature  intended  the  consequences  claimed,  we 
should  expect  it  to  say  so.'  (Press  Co.  v.  Bank,  7  C.  C. 
A.,  at  page  249,  48  Fed.  322.) " 

^ 

(Note :  Some  forms  of  illegality,  in  some  states,  make  a  nego- 
tiable instrument  absolutely  void  for  all  purposes,  but  this  is  not 
true  unless  the  statute  positively  so  declares.) 

Question  480:  State  the  facts  in  this  case,  the  question  pre- 
sented and  the  Court's  decision. 

Sec.  339.    Theft  and  Want  of  Delivery  of  an  Instrument 
Payable  to  Bearer  or  Properly  Endorsed. 

(Set  out  as  Case  No.  442,  supra.) 


PERSONAL  DEFENSES  709 

Sec.  340.    Lack  of  Authority  to  Execute  Instrument. 

(Set  out  as  Case  No.  475,  supra.) 

Case  No.  481.  Dowling  v.  Exchange  Bank,  145  U.  S. 
512. 

Facts:  Suit  by  holder  in  due  course  on  note  given  by 
a  partner  of  a  non-trading  concern  without  the  knowl- 
edge or  benefit  of  his  co-partner.  The  Court  below  held 
that  the  partners  were  liable  on  this  note  to  the  holder 
in  due  course,  and  so  instructed  the  jury.  The  contention 
of  defendant  is  that  a  member  of  a  non-trading  partner- 
ship is  not  liable  upon  the  negotiable  paper  issued  by  a 
co-partner,  unless  authority  had  been  given  in  the  par- 
ticular instance,  or  unless  the  firm  had  so  carried  on  its 
business  that  it  might  be  reasonably  assumed  that  the 
partner  issuing  the  paper  had  authority  from  the  other 
to  do  so,  and  that  this  was  a  fact  to  be  determined  by  the 
jury. 

Point  Involved:  The  power  of  a  member  of  a  non- 
trading  partnership  to  bind  the  firm  on  its  negotiable 
paper,  in  favor  of  a  holder  in  due  course  of  such  paper. 

"It  is  not  disputed  that  the  execution  by  Edward  P. 
Ferry,  in  the  name  of  F.  H.  White  &  Co.,  of  the  notes  in 
suit  was  without  express  authority  of  his  partners,  and 
that  neither  of  the  notes  was  given  or  used  in  the  busi- 
ness of  that  firm.  The  primary  question  therefore  is, 
whether,  for  the  protection  of  the  plaintiff  a  bona  fide 
purchaser  for  value,  it  will  be  conclusively  implied,  as 
matter  of  law,  from  the  nature  or  course  of  the  firm's 
business,  that  Edward  P.  Ferry  had  authority  from  his 
partners  to  make  those  notes  or  either  of  them. 

"Mr.  Justice  Clifford,  speaking  for  the  Court  in  Kim- 
bro  v.  Bullitt,  22  How.  256,  268,  said  that  'wherever  the 
business,  according  to  the  usual  mode  of  conducting  it, 
imports,  in  its  nature,  the  necessity  of  buying  and  selling, 
the  firm  is  then  properly  regarded  as  a  trading  partner- 
ship, and  is  invested  with  all  the  powers  and  subject  to  all 
the  obligations  incident  to  that  relation,'  citing  among 


710  NEGOTIABLE  PAPER 

other  cases,  Winship  v.  Bank  of  United  States,  5  Pet. 
529,  561.  Mr.  Justice  Story  said  that  the  doctrine  that 
each  partner  may  bind  the  firm  by  bills  of  exchange, 
promissory  notes  and  other  negotiable  instruments  is 
generally  limited  to  partnerships  in  trade  and  commerce, 
and  does  not  apply  to  other  partnerships  unless  it  is 
the  common  custom  or  usage  of  such  business  to  bind  the 
firm  by  negotiable  instruments,  or  it  is  necessary  for 
the  due  transaction  thereof.  Story  on  Partnership,  sec. 
102,  a.     *     *     * 

"It  is  very  clear  that  the  articles  of  agreement  between 
Ferry,  White  and  Dowling  did  not  create  a  partnership, 
each  member  of  which  had,  under  the  settled  rules  of  com- 
mercial law,  and  as  between  the  firm  and  those  dealing 
with  it,  authority  to  give  negotiable  paper  in  its  name. 
The  firm  was  of  the  class  denominated  in  many  adjudged 
cases  as  non-trading  or  non-commercial  firms,  the  mem- 
bers of  which  could  not  be  held,  as  matter  of  law,  and 
by  reason  of  the  nature  of  the  partnership  business,  to 
have  authority  to  execute  negotiable  instruments  in  the 
name  of  the  firm. 

"We  quite  agree  with  the  learned  judge  who  presided 
at  the  trial  that  the  liability  of  a  partnership  upon  nego- 
tiable instruments  executed  by  one  partner  in  the  name 
of  the  firm  exists  not  only  where  the  firm  is  a  trading  or 
commercial  partnership,  but  'where  the  actual  course  of 
business  pursued  adopts  the  practice  of  issuing  the  mer- 
cantile paper  of  the  firm  to  accommodate  its  necessities 
or  convenience  whenever  the  occasions  occur/  But  the 
difficulty  in  this  case  is  that  the  jury  were  not  permitted 
to  determine,  from  a  consideration  of  all  the  circum- 
stances of  the  case,  what,  in  view  of  the  admitted  nature 
of  the  business  of  F.  H.  White  &  Co.,  was  necessary  and 
proper  to  its  successful  operation,  what  was  involved  in 
the  usual  and  ordinary  course  of  its  management  by  those 
engaged  in  it,  or  what  should  be  inferred  from  the  actual 
course  and  conduct  of  the  partnership,  so  far  as  it  was 
known,  or  ought  reasonably  to  have  been  known,  to  the 
parties  sought  to  be  charged  with  liability  on  the  notes 


PERSONAL  DEFENSES  711 

in  suit.  We  do  not  deem  it  necessary  to  make  a  detailed 
statement  of  the  numerous  facts  disclosed  by  the  evidence, 
or  to  suggest  what  inference  might  be  drawn  from  them. 
It  is  sufficient  to  say  that  the  issue  as  to  whether  the 
defendants  were  estopped  to  dispute  the  authority  of 
Edward  P.  Ferry  to  make  the  notes  in  suit,  in  the  name 
of  F.  H.  White  &  Co.,  was  one  peculiarly  for  the  jury, 
under  all  the  facts  indicating  the  nature,  necessities,  and 
course  of  business  of  the  firm,  and  under  proper  instruc- 
tions from  the  Court  as  to  the  legal  principles  by  which 
they  should  be  guided  in  determining  the  case. ' ' 

Question  481:  (1.)  Does  a  partner  in  a  trading  partnership 
have  apparent  authority  to  bind  the  firm  for  firm  purposes  on 
negotiable  paper?  If  such  paper  is  issued  for  other  purposes, 
can  this  be  set  up  against  a  holder  in  due  course  ? 

(2. )  When  can  a  holder  in  due  course  hold  a  partner  in  a  non- 
trading  partnership  on  negotiable  paper  wrongfully  issued  by 
his  partner? 


CHAPTER    SIXTY-ONE 

DEFENSES  AVAILABLE  AGAINST  A  HOLDER  IN 
DUE  COURSE  (REAL  DEFENSES) 

§  341.  Personal    incapacity    of  de-       §  344.  Material  alteration. 

fendant.  §  345.  Illegality   where   the   statute 

§  342.  Forgery.  expressly   declares    the    in- 

§  343.  Fraud  in  the  execution.  strument  void. 

Sec.  341.    Personal  Incapacity  of  Defendant. 

Case  No.  482.    Hosier  v.  Beard,  54  Ohio  St.  398. 

Facts:  Beard  while  insane,  but  not  yet  so  declared 
judicially,  gave  a  promissory  note  to  one  Glathart  who 
sold  it  in  due  course  to  Hosier,  the  present  plaintiff.  De- 
fense, insanity  at  the  time  of  the  execution  of  the  note. 

Point  Involved:  Whether  the  maker  of  a  note  may  de- 
fend against  a  bona  fide  holder  that  he  was  insane  when 
he  gave  the  note. 

Williams,  C.  J.:  "The  material  question  then  is 
whether  that  rule  of  commercial  law  which  protects  nego- 
tiable paper  in  the  hands  of  a  bona  fide  holder,  who  has 
acquired  it  before  its  maturity,  for  value,  is  applicable 
to  such  paper  signed  by  persons  who  at  the  time  were  non 
compos  mentis,  where  there  has  been  no  ratification  of 
it;  and  that  it  is  not,  is  well  settled.  Such  paper  being 
invalid,  except  to  the  extent  that  it  is  founded  upon  a  con- 
sideration of  necessaries,  or  other  valuable  consideration, 
actually  furnished,  an  action  dissociated  from  such  con- 
sideration cannot  be  maintained  upon  it,  when  the  inca- 
pacity of  the  maker  is  shown;  and  the  quality  of  nego- 

712 


REAL  DEFENSES  713 

tiability  does  not  attach  to  it,  though  made  negotiable  in 
form;  and  every  holder  of  such  paper  is  chargeable  in 
law  with  notice  of  the  status  of  the  maker  as  it  existed 
at  the  time  of  its  execution,  and  stands,  therefore,  in  no 
better  position,  so  far  as  his  right  of  action  against  the 
maker  is  concerned,  than  the  payee  from  whom  he  ob- 
tained it;  and  a  want  of  actual  knowledge,  when  he  re- 
ceived the  note,  of  the  maker's  mental  condition  when  it 
was  signed,  makes  no  difference  in  that  respect.  So  far 
as  we  have  been  able  to  discover,  the  authorities  uni- 
formly maintain  that  the  paper  of  persons  non  compos, 
infants,  and  feme  coverts  at  common  law,  all  resting 
upon  much  the  same  principle,  is  not  within  the  commer- 
cial rule  which  protects  a  bona  fide  holder  of  a  negotiable 
note,  received  before  it  became  due,  from  the  defenses 
which  the  maker  might  have  made  against  the  payee; 
and  that,  in  defense  to  such  paper  in  the  hands  of  such  a 
holder,  the  maker's  incapacity  to  execute  it  may  be 
shown. ' ' 

Question  482:  What  was  the  point  at  issue  in  this  case?  Did 
it  prevail?    Why? 

(2.)  Suppose  the  maker  in  this  case  had  been  a  minor. 
Would  the  defense  have  prevailed? 

Sec.  342.    Forgery. 
Case  No.  483.    Ehrler  v.  Braun,  120  Illinois,  503. 

Mulkey,  J.:  "*  *  *  That  the  notes  *  *  * 
are  forgeries  we  think  is  established  by  the  decided 
weight  of  evidence.  *  *  *  Conceding,  then,  as  we 
must,  that  the  notes  in  the  hands  of  the  appellant  are 
forgeries,  it  is  very  clear  that  the  fact  that  she  is  a  bona 
fide  holder  for  value  cannot  avail  her  anything  unless 
appellee  has  so  acted  in  respect  to  them  as  to  estop  him 
from  interposing  their  original  infirmity  as  a  defence, 
#     #     # )» 

Question  483:  Is  forgery  a  good  defense  against  a  holder  in 
due  course?  Might  there  be  circumstances  under  which  the 
defense  would  not  be  good  ? 


714  NEGOTIABLE  PAPER 

Sec.  343.    Fraud  in  the  Execution. 

Case  No.  484.    Auten  v.  Gruner,  90  Illinois,  300. 

Facts:  Suit  by  indorsee  of  a  note  signed  by  defendant. 
The  payee  of  the  note  was  a  traveling  peddler,  selling 
churns  for  $10.00,  one  of  which  defendant  purchased  and 
was  asked  to  sign  a  note  for  ten  dollars  at  six  months 
as  the  price  thereof.  He  read  the  note  twice  and  saw  that 
it  was  for  ten  dollars.  By  some  trick,  that  he  could  not 
explain,  a  note  for  $300  was  inserted  in  the  stead  of  the 
note  read  by  the  defendant,  and  his  signature  thereby 
obtained. 

Point  Involved:  Whether  fraud  in  the  execution  or 
procurement,  i.  e.,  in  the  nature  of  a  trick,  by  which  the 
signature  is  obtained  to  a  different  instrument  than  one 
meant  to  sign,  is  a  good  defense  against  a  holder  in  due 
course. 

Mr.  Justice  Scott:  "•  *  *  Adhering  as  we  do  to 
what  has  been  said  in  our  former  decisions,  as  to  the  de- 
gree of  caution  to  be  observed  by  the  maker  of  negotiable 
paper  before  he  will  be  permitted  to  defend  against  his 
note  in  the  hands  of  an  innocent  assignee  before  matur- 
ity on  the  ground  it  was  obtained  by  fraud  and  circum- 
vention, still,  we  think  the  evidence  in  this  record  does 
not  show  defendant  omitted  to  observe  due  care,  or  that 
he  was  guilty  of  such  negligence  as  ought,  equitably,  to 
estop  him  from  defending  against  the  note  in  suit.  He 
bought  a  churn  from  a  stranger  for  the  use  of  his  fam- 
ily, for  the  sum  of  $10,  and  supposed  he  was  giving  his 
note  for  that  amount.  Observing  unusual  care  he  twice 
read  the  note  and  could  discover  nothing  wrong  about  it. 
That  he  was  tricked  into  signing  the  note  in  controversy 
was  no  fault  of  his,  and  he  does  not  even  know  how  it 
was  done." 

Question  484:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  this  case. 

(2.)  Suppose  the  defendant  had  not  read  the  note,  would 
his  defense  be  good  ? 


REAL  DEFENSES  715 

Sec.  344.    Material  Alteration. 

Case  No.  485.     Merritt  v.  Boyden,  191  111.  136. 
Facts:  Suit  was  brought  on  a  promissory  note,  reading 
as  follows : 

"1300.  Kewanee,  Illinois,  Oct.  4,  1897. 

One  year  after  date  I  promise  to  pay  to  the  order  of 
ourselves  thirteen  hundred  dollars  at  Kewanee,  111.  Value 
received,  with  interest  at  the  rate  of  seven  per  cent  per 
annum. 

(sd.)       L.    SILVERMAN, 

H.  Clay  Merritt." 
Indorsed  on  back : 

"L.  Silverman. 
H.  Clay  Merritt." 

Boyden  &  Son  paid  $1300  for  the  note,  acquired  it  be- 
fore maturity  and  had  no  notice  of  any  alteration.  The 
defense  was  based  on  the  alternative  two  theories:  (1) 
That  the  note  as  originally  delivered  contained  the  fig- 
ures ' '  $100 ' '  in  the  margin,  and  the  words  ' '  one  hundred 
dollars"  in  the  body  of  the  note,  and  that  the  figures 
"$100"  were  altered  to  read  "$1300,"  and  the  word 
"one"  before  "hundred"  was  erased,  and  the  word 
"thirteen"  inserted  in  its  stead;  or 

(2)  That  the  word  "one"  was  not  in  the  body  of  the 
note,  but  that  there  was  a  blank  space  in  which  the  word 
"thirteen"  had  been  inserted. 

The  Court  in  the  course  of  its  opinion  said:  "First, 
If  the  note  was  altered  by  (the  first  method)  then  the 
alteration  amounted  to  a  forgery  and  appellant  is  not 
liable  on  the  note,  even  though  appellees  were  bona  fide 
purchasers  thereof  for  value  without  notice  or  knowledge 
of  the  change.  If  the  amount  named  in  the  note  is  raised 
by  erasing  what  is  written,  such  alteration  is  a  material 
one,  and  the  note  is  thereby  vitiated  so  as  to  become 
void.  *  *  *  Where  a  note  is  complete  at  the  time 
when  it  is  signed  by  the  maker,  its  subsequent  alteration 
by  raising  the  amount  thereof  through  obliteration  of  the 


716  NEGOTIABLE  PAPER 

same  by  the  use  of  any  chemical  process,  or  other  in- 
genious device,  without  the  knowledge  or  consent  of  the 
maker,  will  discharge  him  from  liability  upon  the  note. 
*  *  *  (The  Court  found  this  theory  unsupported  by 
the  evidence.) 

"The  second  theory  of  the  defense  *  *  *  was 
that,  when  he  signed  and  endorsed  the  note,  there  was  a 
blank  space  before  the  word  'hundred'  and  that  this  blank 
space  was  subsequently  filled  by  inserting  the  word 
'thirteen*  therein  without  the  knowledge  or  consent  of 
the  appellant.  *  *  *  When  the  maker  of  the  note 
has,  by  careless  execution  of  the  instrument  left  room  for 
an  alteration  to  be  made  by  insertion  without  defacing 
the  instrument  or  exciting  the  suspicion  of  a  careful  man, 
and  the  instrument  by  reason  of  the  opportunity  thus 
afforded  is  subsequently  filled  up  with  a  larger  amount 
than  that  which  it  bore  at  the  time  it  was  signed,  the 
maker  will  be  liable  upon  it  as  altered  to  any  bona  fide 
holder  without  notice. ' '  (This  left  the  contention  that  the 
marginal  figures  had  been  altered  to  be  disposed  of. 
For  even  though  the  makers  of  the  note  were  negligent 
as  to  the  body  of  the  note,  the  marginal  figures  must 
have  been  erased  and  changed.  As  to  that  the  Court 
said:)  "The  marginal  figures  have  been  held  to  be  not 
part  of  the  instrument,  but  to  be  intended  merely  as  a 
convenient  index,  and  as  an  aid  to  remove  ambiguity  or 
doubt  in  the  instrument  itself.  The  alteration  or  erasure 
of  the  marginal  figures  is  an  immaterial  alteration  and 
will  not  affect  the  rights  of  the  holder  of  the  instrument. ' ' 

Question  485:  (1.)  What  were  the  theories  of  the  defense? 
How  were  they  disposed  of? 

(2.)  What  did  the  Court  say  with  reference  to  the  duty  of  a 
maker  of  negotiable  paper  to  fill  in  blank  spaces,  so  that  the  check 
could  not  be  easily  altered?  (For  another  view,  see  the  next 
case.) 

Case  No.  486.  National  Exchange  Bank  v.  Lester,  194 
N.  Y.  461. 

Facts:    See  the  opinion. 


REAL  DEFENSES  717 

Willabd  Baetlett,  J..,  delivered  the  opinion  of  the 
Court : 

"As  this  case  went  to  the  jury,  they  might  well  have 
found  that  the  note  in  suit  was  a  note  for  only  $75  when 
originally  prepared  by  the  maker  and  indorsed  at  his  in- 
stance by  the  defendant,  and  that  it  had  subsequently 
been  altered  to  a  note  for  $375  when  discounted  by  the 
plaintiff  bank.  They  were  instructed  in  substance,  how- 
ever, that  the  indorser  was  liable  for  the  amount  of  the 
note  as  raised  by  the  alteration,  if  he  had  been  careless 
and  negligent  in  placing  his  name  upon  the  instrument 
while  there  were  spaces  thereon  which  permitted  the 
insertion  of  the  words  and  figure  whereby  it  was  trans- 
muted from  a  note  for  $75  into  a  note  for  $375.  Conced- 
ing that  the  contract  which  he  actually  signed  bound  him 
only  to  pay  the  smaller  amount,  the  jury  were  permitted 
to  find  that,  in  consequence  of  his  negligence  in  the  re- 
spect indicated,  it  had  become  a  contract  which  bound 
him  to  pay  the  larger  amount  to  a  subsequent  innocent 
holder  of  the  paper. 

"In  support  of  the  correctness  of  this  ruling,  the 
learned  counsel  for  the  respondent  asserts  the  doctrine 
that  'a  party  to  a  note  who  puts  his  name  to  it  in  any 
capacity  of  liability,  when  it  contains  blanks  uncanceled 
facilitating  an  alteration  raising  the  amount,  is  liable  for 
the  face  of  the  note,  as  raised,  to  an  innocent  holder  for 
value;'  and  he  declares  that  this  doctrine  has  been  ap- 
proved and  apparently  adopted  in  Alabama,  California, 
Colorado,  Illinois,  Kansas,  Kentucky,  Louisiana,  Michi- 
gan, Missouri,  Nebraska  and  Pennsylvania.  In  consider- 
ing his  proposition,  it  is  important  to  bear  in  mind  a 
radical  distinction  which  exists  between  two  classes  of 
notes  to  which  the  adjudicated  cases  relate:  (1)  Those 
notes  in  which  obvious  blanks  are  left,  at  the  time  when 
they  are  made  or  indorsed,  of  such  a  character  as  mani- 
festly to  indicate  that  the  instruments  are  incomplete 
until  such  blanks  shall  be  filled  up;  and  (2)  those  notes 
which  are  apparently  complete,  and  which  can  be  re- 
garded as  containing  blanks  only  because  the  written 


718  NEGOTIABLE  PAPER 

matter  does  not  so  fully  occupy  the  entire  paper  as  to 
preclude  the  insertion  of  additional  words  or  figures  or 
both.  It  is  a  note  of  the  latter  class  that  we  have  to  deal 
with  here.  One  who  signs  or  indorses  a  note  of  the  first 
class  has  been  held  liable  to  bona  fide  holders  thereof,  in 
some  of  the  cases  cited  by  the  respondent,  according  to 
the  terms  of  the  note  after  the  blanks  have  been  filled,  on 
the  doctrine  of  implied  authority,  while,  in  other  cases, 
relating  to  notes  of  the  second  class,  the  liability  of  the 
maker  or  indorser  for  the  amount  of  the  note  as  increased 
by  filling  up  the  unoccupied  spaces  therein  is  placed  upon 
the  doctrine  of  negligence  or  estoppel  by  negligence. 
The  cases  cited  by  respondent  in  which  parties  to  com- 
mercial paper,  executed  by  them  while  obvious  blanks 
remained  unfilled  thereon,  have  been  held  liable  upon  the 
instrument  as  completed  by  filling  out  such  blanks,  on  the 
ground  of  implied  authority,  require  no  further  consid- 
eration here,  as  there  is  no  suggestion  that  there  was  any 
blank  of  this  character  upon  the  note  in  suit.  These  cases 
are:  Winter  v.  Pool,  104  Ala.  580, 16  So.  543;  Statton  v 
Stone,  15  Colo.  App.  237,  61  Pac.  481 ;  Cason  v.  Grant 
County,  21  L.  E,  A.  (N.  S.)  Deposit  Bank,  97  Ky.  487,  53 
Am.  St.  Rep.  418,  31  S.  W.  40;  Weidman  v.  Symes,  120 
Mich.  657,  77  Am.  St.  Rep.  603, 79  N.  W.  894.  There  were 
obvious  blanks  also  in  the  notes  under  consideration  in 
Visher  v.  Webster,  8  Cal.  109,  and  Lowden  v.  Schoharie 
County  Nat.  Bank,  38  Kan.  533,  16  Pac.  748,  and  the  de- 
cision in  each  of  these  cases  appears  to  have  proceeded 
upon  the  doctrine  of  implied  authority  rather  than  negli- 
gence. 

"It  must  frankly  be  conceded,  however,  that  the  re- 
spondent finds  support,  for  the  doctrine  which  it  asserts 
in  the  case  at  bar,  in  the  decisions  of  Pennsylvania,  Illi- 
nois, and  Missouri,  so  far  as  the  maker  of  commercial 
paper  is  concerned,  and  in  those  of  Kentucky  and  Louisi- 
ana, in  respect  to  the  liability  of  a  party  who  has  indorsed 
or  become  surety  upon  a  note  in  which  there  were  spaces 
(not  obvious  blanks)  that  permitted  fraudulent  insertions 
enlarging  the  amount.    Garrard  v.  Haddan,  67  Pa.  82,  5 


REAL  DEFENSES  719 

Am.  Rep.  412 ;  Yocum  v.  Smith,  63  111.  321,  14  Am.  Rep. 
120 ;  Scotland  County  Nat.  Bank  v.  O'Connel,  23  Mo.  App. 
165;  Hackett  v.  First  Nat.  Bank,  114  Ky.  193,  70  S.  W. 
664 ;  Isnard  v.  Torres,  10  La.  Ann.  103.  I  am  of  opinion 
that  no  liability  on  the  part  of  the  indorser  for  the  amount 
of  such  a  note  as  raised  can  be  predicated  simply  upon 
the  fact  that  such  spaces  existed  thereon.  This  conclu- 
sion I  base  upon  the  authorities  to  that  effect  which  I 
have  already  discussed,  and  upon  what  seem  to  me  to  be 
considerations  of  sound  reason  independent  of  judicial 
authority.  An  averment  of  negligence  necessarily  im- 
ports the  existence  of  a  duty.  What  duty  to  subsequent 
holders  of  a  promissory  note  is  imposed  by  the  law  upon 
a  person  who  is  requested  to  indorse  the  paper  for  the 
accommodation  of  the  maker,  and  who  complies  with  such 
request!  It  is  a  complete  instrument  in  all  respects  as 
to  date,  name  of  payee,  time  and  place  of  payment,  and 
amount.  There  are,  it  is  true,  spaces  on  the  face  of  the 
instrument  in  which  it  is  possible  to  insert  words  and 
figures  which  will  enlarge  the  amount,  and  still  leave  the 
note  apparently  a  genuine  instrument;  in  other  words, 
there  is  room  for  forgery.  On  what  theory  is  the  in- 
dorser negligent  because  he  places  his  name  on  the  paper 
without  first  seeing  to  it  that  these  spaces  are  so  occu- 
pied by  cross  lines  or  otherwise  as  to  render  forgery  less 
feasible?  It  can  only  be  on  the  theory  that  he  is  bound  to 
assume  that  those  to  whom  he  delivers  the  paper,  or  into 
whose  hands  it  may  come,  will  be  likely  to  commit  a  crime 
if  it  is  comparatively  easy  to  do  so.  I  deny  that  there  is 
any  such  presumption  in  the  law.  It  would  be  a  stigma 
and  reflection  upon  the  character  of  the  mercantile  com- 
munity, and  constitute  an  intolerable  reproach  of  which 
they  might  well  complain  as  without  justification  in  prac- 
tical experience  or  the  conduct  of  business.  That  there 
are  miscreants  who  will  forge  commercial  paper  by  raid- 
ing the  amount  originally  stated  in  the  instrument  is 
too  true,  and  is  evidenced  by  the  cases  in  the  law  reports 
to  which  we  have  had  occasion  to  refer;  but  that  such 
misconduct  is  the  rule,  or  is  so  general  as  to  justify  the 


720  NEGOTIABLE  PAPER 

presumption  that  it  is  to  be  expected,  and  that  business 
men  must  govern  themselves  accordingly,  has  never  yet 
been  asserted  in  the  state,  and  I  am  not  willing  to  sanction 
any  such  proposition  either  directly  or  by  implication. 
On  the  contrary,  the  presumption  is  that  men  will  do 
right  rather  than  wrong.  See  Bradish  v.  Bliss,  35  Vt. 
326.  As  was  said  by  Judge  Cullen  in  Critten  v.  Chemical 
Nat.  Bank,  171  N.  Y.  219,  224,  57  L.  E.  A.  529,  63  N.  E. 
969,  it  is  not  the  law  that  the  drawer  of  a  check  is  bound 
so  to  prepare  it  that  nobody  else  can  successfully  tamper 
with  it.  Neither  is  it  the  law  that  the  indorser  of  a  prom- 
issory note  complete  on  its  face  may  be  made  liable  for 
the  consequences  of  a  forgery  thereof  simply  because 
there  were  spaces  thereon  which  rendered  the  forgery 
easier  than  would  otherwise  have  been  the  case. ' ' 

Question  486:  (1.)  What  did  the  Court  hold  in  this  case 
with  reference  to  the  liability  of  a  party  on  negotiable  paper 
because  he  left  blanks  that  might  be  filled? 

(2.)     Which  do  you  believe  to  be  the  sounder  view?    Why? 

Sec.  345.    Illegality  Where  the  Statute  Expressly  Makes 
the  Instrument  Void  for  All  Purposes. 

(Note:  As  shown  by  the  case  in  the  preceding  chapter,  ille- 
gality is  no  defense  against  a  holder  in  due  course.  The  statute, 
however,  as  to  some  forms  of  illegality,  may  make  an  instrument 
absolutely  void  for  all  purposes  and  in  every  person's  hands. 
Some  states  have  statutes  of  this  sort,  not  as  to  illegality  gen- 
erally, but  as  to  some  special  forms,  such  as  gambling.) 


CHAPTER    SIXTY-TWO 
LIABILITY  OF  PARTIES 

§  346.  Liability   and   admissions  of      §  350.  Liability    of    transferror    by 
the  maker.  delivery    or    qualified    en- 

§  347.  Liability  of  the  drawer.  dorser. 

§  348.  Liability    and   admissions  of       §  351.  Liability    of    unqualified    en- 
the  acceptor.  dorser. 

§  349.  Liability   of  party   endorsing 
irregularly. 

Sec.  346.    Liability  and  Admissions  of  the  Maker. 

Case  No.  487.    McMann  et  al.  v.  Walker,  31  Col.  261. 

Facts:  The  plaintiff  sues  as  indorsee  of  a  note  made 
by  defendant  to  the  order  of  the  Sprague  Collection 
Agency  and  by  such  payee  endorsed  to  plaintiff.  The 
Sprague  Collection  Agency  was  a  foreign  corporation  in 
the  state  of  Colorado  and  had  not  complied  with  the  for- 
eign corporation  law  of  the  state  of  Colorado,  requiring 
compliance  therewith  before  qualified  to  transact  busi- 
ness in  that  state.  The  defendant  contends  that  the  note 
is  invalid. 

Point  Involved:  Whether  the  maker  of  a  note  can  set 
up  as  against  the  indorsee  that  the  note  is  void  because 
the  payee  corporation  has  not  complied  with  the  foreign 
corporation  laws. 

Garbeet,  J. :  ' '  *  *  *  The  question  is  one  which  has 
been  discussed  by  the  courts  of  several  states,  with  the 
result  that  the  decisions  on  the  subject  are  not  altogether 
harmonious.    Whether  or  not  the  note  in  question  be  in- 

721 


722  NEGOTIABLE  PAPER 

valid  as  between  the  maker  and  the  payee  is  a  question 
upon  which  we  express  no  opinion,  because  that  proposi- 
tion is  not  involved,  *  *  *.  In  this  state  the  general 
rule  of  law  prevails  that  negotiable  paper,  although  in- 
valid as  between  the  original  parties,  is  valid  as  to  third 
persons  obtaining  it  for  value  before  maturity  and  with- 
out notice  of  its  infirmities,  unless  so  declared  by  statute. 
*  *  *  The  defendant,  by  giving  a  note  which  is  not  the 
subject  of  statutory  enactment  thereby  conclusively  ad- 
mitted as  to  third  parties  purchasing  before  maturity  and 
in  good  faith,  the  legal  existence  of  the  payee,  and  its 
authority  to  take  such  note  and  to  negotiate  and  transfer 
it  by  endorsement.     *     *     *." 

Question  487 :  What  did  the  Court  say  that  the  maker  admit- 
ted as  to  his  payee? 

Sec.  347.    Liability  of  the  Drawer. 

Case  No.  488.  Uniform  Negotiable  Instruments  Act, 
Sec.  61. 

"The  drawer,  by  drawing  the  instrument,  admits  the 
existence  of  the  payee  and  his  then  capacity  to  indorse ; 
and  engages  that  on  due  presentment  the  instrument  will 
be  accepted  or  paid,  or  both,  according  to  its  tenor,  and 
that,  if  it  be  dishonored,  and  the  necessary  proceedings 
on  dishonor  be  duly  taken,  he  will  pay  the  amount  thereof 
to  the  holder,  or  to  any  subsequent  indorser  who  may  be 
compelled  to  pay  it.  But  the  drawer  may  insert  in  the 
instrument  an  express  stipulation  negativing  or  limiting 
his  own  liability  to  the  holder." 

Question  488:  (1.)  Can  the  drawer  deny  the  existence  of 
the  payee  or  his  capacity  to  endorse  V 

(2.)  Suppose  the  drawee  refuses  to  accept  or  pay  according 
to  the  tenor  of  the  instrument,  can  recourse  be  had  to  the  drawer  ? 
Upon  what  condition? 


LIABILITY  OF  PARTIES  723 

Sec.  348.    Liability  and  Admissions  of  the  Acceptor. 

Case  No.  489.     Price  v.  Neal,  3  Burrows,  1354. 

Facts:  Suit  brought  by  Price  against  Neal.  It  was 
proved  on  the  trial  that  two  bills  were  drawn,  one  of 
which  read  as  follows : 

"Leicester,  22d  November,  1760.  Sir,  six  weeks  after 
date  pay  Mr.  Rogers  Ruding  or  order  forty  pounds,  value 
received  for  Mr.  Thomas  Poughfor;  as  advised  by,  Sir, 
your  humble  servant  Benjamin  Sutton.  To  Mr.  John 
Price,  in  Bush-lane,  Gennon  Street,  London,"  indorsed, 
etc. 

That  this  and  the  other  bill  was  indorsed  by  Neal  who 
gave  value  therefor,  and  that  the  bill  being  presented  to 
Price,  he  by  one  of  his  clerks,  paid  it  to  Neal.  This  bill 
was  forged  by  one  Lee,  but  this  was  unknown  to  Price 
or  Neal. 

This  suit  is  to  recover  back  the  money  paid  by  the  ac- 
ceptor to  the  holder  on  these  forged  bills. 

Point  Involved:  Whether  a  drawee  of  a  forged  bill  of 
exchange,  who  pays  the  same  to  a  bona  fide  holder  for 
value,  can  recover  back  the  amount  so  paid  on  discover- 
ing the  forgery. 

Lord  Mansfied  :  ' '  But  it  can  never  be  thought  uncon- 
scientious in  the  defendant  to  retain  this  money  when 
he  has  once  received  it  on  a  bill  of  exchange  indorsed  to 
him  for  a  fair  and  valuable  consideration,  which  he  had 
bona  fide  paid,  without  the  least  privity  or  suspicion  of 
any  forgery. ' ' — Verdict  for  defendant. 

Question  489:  State  the  facts,  the  question  presented  and 
the  Court 's  decision  in  this  case. 

Case  No.  490.  National  Bank  of  Rolla  v.  First  Na- 
tional Bank,  141  Missouri  Appeals,  719. 

Facts :  Martin  L.  Chambers  made  out  a  check  payable 
to  J.  B.  Ragan,  on  the  National  Bank  of  Rolla,  and  forged 
the  signature  of  H.  W.  Lennox  thereto.    The  said  Cham- 


724  NEGOTIABLE  PAPER 

bers  thereupon  went  to  the  First  National  Bank  of  Salem 
and  represented  himself  to  be  the  payee  and  endorsed 
the  payee's  name  and  secured  the  money,  the  cashier 
knowing  none  of  the  parties  and  requiring  no  identifica- 
tion. The  Bank  of  Salem  thereupon  guaranteed  the  en- 
dorsements as  genuine  and  sent  the  check  to  the  drawee 
bank.  The  cashier  of  such  bank  knew  that  the  signature 
was  not  that  of  Ragan  but  he  knew  Ragan  and  Len- 
nox had  some  dealings  together  and  he  noticed  that  the 
indorsements  were  guaranteed  by  the  Salem  Bank,  and 
he  thereupon  remitted  the  money  to  the  Salem  Bank.  The 
cancelled  check  was  then  sent  as  a  voucher  to  Lennox  and 
Lennox  returned  it  as  a  forgery,  and  the  bank  re-credited 
him  with  the  amount.  The  Bank  of  Rolla  then  wrote  to 
the  Bank  of  Salem  and  demanded  payment  on  the  check 
on  the  ground  that  the  Bank  of  Salem  had  guaranteed 
the  signatures.  The  Bank  of  Salem  responded  that  it 
would  not  pay  inasmuch  as  it  considered  itself  not  liable, 
whereupon  this  suit  was  brought  by  the  Bank  of  Rolla 
against  the  Bank  of  Salem. 

Point  Involved:  Whether  a  drawee  of  a  check  or  bill 
who  pays  the  same  to  a  bona  fide  holder,  can  recover  back 
the  amount  it  has  paid  upon  such  check  being  discovered 
to  be  a  forgery. 

Gray,  J.  (after  reviewing  many  authorities) :  "*  *  * 
In  addition  to  the  authorities,  the  Negotiable  Instruments 
Act  of  1905,  contains  the  following  sections : 

"  'Sec.  62.  The  acceptor  by  accepting  the  instrument 
engages  that  he  will  pay  it  according  to  the  tenor  of  its 
acceptance ;  and  admits :  the  existence  of  the  drawer,  the 
genuineness  of  his  signature,  and  his  capacity  and  au- 
thority to  draw  the  instrument ;  and  the  existence  of  the 

payee  and  his  capacity  to  endorse. 
it  i*      *      *f 

"The  adoption  in  this  and  other  states  of  our  Nego- 
tiable Instruments  Law  was  for  the  purpose  of  having 
in  the  statutory  laws  of  the  states  a  uniform  law  in  re- 
gard to  commercial  paper.  *  *  *  There  was  no  ques- 
tion upon  which  the  courts  were  more  in  conflict  than 


LIABILITY  OF  PARTIES  725 

upon  the  question  involved  in  this  case.  After  a  careful 
examination  of  the  new  law  we  are  inclined  to  believe  that 
it  was  intended  to  adopt  the  law  as  declared  in  Price  v. 
Neal,  supra." 

Question  490:  State  the  "point  involved"  and  the  Court's 
decision  in  this  case. 

Sec.  349.    Liability  of  Party  Indorsing  Irregularly,  Etc. 

Case  No.  491.  Eockfield  et  al.  v.  First  National  Bank 
of  Springfield,  77  Ohio  St.  311. 

Facts:  A  note  was  made  in  the  following  form: 
"$10,000.  Springfield,  Ohio,  December  12,  1904.  On  de- 
mand after  date,  we  jointly  and  severally  promise  to  pay 
the  First  National  Bank  of  Springfield,  Ohio,  or  order, 
at  its  banking  house,  ten  thousand  dollars  for  value  re- 
ceived, with  six  per  cent  interest  after  date.  (Signed) 
The  Springfield,  Charleston,  Washington  &  Chillicothe 
Railway  Co.,  H.  L.  Rockfield,  President;  E.  H.  Ackerson, 
Secretary."  On  the  back  of  the  note  appeared  these 
names:  "John  Snyder,  Frank  Patterson,  L.  M.  Goode, 
E.  H.  Ackerson."  The  First  National  Bank  brings  suit 
on  this  instrument  against  these  parties  whose  names 
are  on  the  back  of  the  notes,  averring  that  such  names 
were  on  the  note  prior  to  its  delivery.  Defense,  that  the 
defendants  signed  for  accommodation  only,  receiving  no 
consideration,  and  that  they  were  not  notified  by  the 
holder  of  the  note  of  its  non-payment  by  the  maker  at 
maturity. 

Point  Involved:  The  nature  of  the  undertaking  of 
parties  irregularly  endorsing  a  note  before  its  delivery ; 
whether  such  parties  are  indorsers  and  as  such  entitled 
to  the  notice  of  dishonor  which  the  law  requires  to  be 
given  to  indorsers  in  order  to  charge  them. 

Spear,  J.:  «*•  *  *  The  theory  of  the  defendants' 
pleading  is  that  Rockford  and  Snyder,  by  writing  their 
names  across  the  back  of  the  note,  became  indorsers  in 
the  commercial  sense,  and  therefore  entitled  to  notice  of 


726  NEGOTIABLE  PAPER 

demand  at  maturity  of  the  maker  and  of  non-payment, 
and,  failing  that,  no  liability  attached.  The  theory  of 
the  petition  [of  the  plaintiff]  is  that  these  defendants, 
having  signed  the  note  before  delivery,  must  be  held  to 
have  signed  with  the  purpose  of  giving  it  credit  and  of 
aiding  negotiablty,  and  therefore  stand  as  makers,  and 
although  their  names  appear  on  the  back  of  the  instru- 
ment, and  they  are  in  law  sureties,  yet  they  are  not  en- 
dorsers in  the  commercial  sense  and  therefore  not  entitled 
to  notice  of  demand  and  non-payment.  This  view  is  the 
one  adopted  by  the  trial  Court.  *  *  *  Which  is  the 
correct  view  is  the  question  we  have.  *  *  *  That  the 
conclusion  adopted  by  the  lower  courts  is  in  accord  with 
the  law  as  held  in  this  state  from  early  times  and  with 

all  the  decisions  of  this  Court  thus  far  made  is  conceded. 

*     *     * 

"The  statute  referred  to  is  the  act  of  April  17,  1902, 
known  as  the  Negotiable  Instruments  Act.  *  *  *  By 
the  provisions  of  these  sections  *  *  *  a  person  plac- 
ing his  signature  upon  an  instrument  otherwise  than  as 
maker,  drawer,  or  acceptor  is  deemed  to  be  an  indorser 
unless  he  clearly  indicates  by  appropriate  words  his  in- 
tention to  be  bound  in  some  other  capacity.  Then  follows 
as  to  liability,  this:  Where  a  person  not  otherwise  a 
party  to  an  instrument  places  thereon  his  signature  on 
blank  before  delivery,  he  is  liable  as  indorser :  (1)  If  the 
instrument  is  payable  to  the  order  of  a  third  person,  he  is 
liable  to  the  payee  and  all  subsequent  parties.  (2)  If 
the  instrument  is  payable  to  the  order  of  the  maker  or 
drawer,  or  is  payable  to  bearer,  he  is  liable  to  all  parties 
subsequent  to  the  maker  or  drawer.  (3)  If  he  signs  for 
the  accommodation  of  the  payee  he  is  liable  to  all  parties 
subsequent  to  the  payee.  Every  indorser  who  indorses 
without  qualificatiomguarantees  to  all  subsequent  holders 
the  genuineness  of  the  instrument,  the  title,  the  capacity 
of  previous  parties  to  contract,  etc.,  and  engages  that  on 
due  presentment,  the  instrument  shall  be  accepted  or 
paid,  or  both,  as  the  case  may  be,  and  that  if  it  be  dis- 
honored and  the  necessary  proceedings  on  dishonor  be 


LIABILITY  OF  PARTIES  727 

duly  taken,  he  will  pay  the  amount  thereof  to  the  holder 
or  to  any  subsequent  indorser  who  may  be  compelled  to 
pay  it.  Presentment  for  payment  must  be  made  at  a 
reasonable  hour  on  a  business  day  at  a  proper  place  to 
the  person  primarily  liable  on  the  instrument,  or,  if  he  is 
absent  or  inaccessible  to  the  person  found  at  the  place 
where  the  presentment  is  made.  When  such  instrument 
has  been  dishonored  by  non-acceptance  or  non-payment 
notice  of  dishonor  must  be  given  to  the  drawer  and  to 
each  indorser  and  any  drawer  or  indorser  to  whom  such 

notice  is  not  given  is  discharged. 

n*     #     # 

1  'It  follows  from  these  conclusions  that  by  force  of 
sections  *  *  *  of  the  Revised  Statutes  of  1906,  a 
person  who,  being  a  stranger  to  a  promissory  note,  places 
his  name  on  the  back  by  blank  indorsement,  is  an  indorser 
of  the  paper  and  cannot  be  held  in  any  other  capacity. 
As  such,  he  is  entitled  in  order  to  render  him  liable,  to 
notice  of  demand  upon  those  who  are  primarily  liable, 
and  failing  such  demand,  and  due  notice  to  him,  he  is 
discharged.  The  answer  [of  the  defendant]  therefore, 
stated  a  defense  and 'the  sustaining  of  the  demurrer  and 
rendering  judgment  for  the  bank  upon  the  note  was 
error." — Judgment  reversed  and  cause  remanded. 

Question  491:  (1.)  In  what  manner  did  the  defendants  in 
this  case  sign  ? 

(2.)     What  was  their  defense? 

(3.)     On  what  theory  did  the  plaintiff  attempt  to  hold  them? 

(4. )  What  did  the  bank  omit  to  do  that  freed  the  indorsers 
from  liability? 

(5.)  What  was  the  law  of  Ohio  on  this  point  prior  to  the 
enactment  of  the  Uniform  Law  in  1902  ?  Would  the  defense  have 
been  good  prior  to  that  date  ?    Why  ? 

(6.)  Did  the  Negotiable  Instruments  Act  change  the  Ohio 
law? 

Sec.  350.    Liability  of  Transferror  by  Delivery  or  Quali- 
fied Endorser. 

Case  No.  492.  Uniform  Negotiable  Instruments  Act, 
Sec.  65. 


728  NEGOTIABLE  PAPER 

"Every  person  negotiating  an  instrument  by  delivery 
or  by  a  qualified  indorsement,  warrants : 

4 '  1.  That  the  instrument  is  genuine  and  in  all  respects 
what  it  purports  to  be.  - 

"2.  That  he  has  a  good  title  to  it. 

"3.  That  all  prior  parties  had  capacity  to  contract. 

"4.  That  he  has  no  knowledge  of  any  fact  which  would 
impair  the  validity  of  the  instrument,  or  render  it  value- 
less. 

"But  when  the  negotiation  is  by  delivery  only,  the  war- 
ranty extends  in  favor  of  no  holder  other  than  the  im- 
mediate transferee. 

'  *  The  provisions  of  subdivision  three  of  this  section  do 
not  apply  to  persons  negotiating  public  or  corporate  se- 
curities, other  than  bills  and  notes." 

Question  492:  (1.)  When  one  transfers  an  instrument  by 
delivery  (i.  e.,  without  indorsement)  and  the  maker  fails  to  pay, 
can  such  transferror  be  made  to  pay  ? 

(2.)     What  does  such  a  transferror  warrant? 

(3.)  What  is  the  liability  of  one  who  endorses  without 
recourse  ? 

Case  No.  493.    Challis  v.  McCrum,  22  Kas.  157. 

Facts :  The  plaintiff  McCrum  purchased,  after  its  ma- 
turity, a  note  which  was  indorsed  to  him  "Without  re-, 
course.  W.  L.  Challiss. ' '  When  plaintiff  sued  the  maker, 
the  maker  successfully  interposed  the  defense  of  usury 
and  thereby  defeated  in  part  the  payment  of  the  note. 
Thereupon  McCrum  brought  this  action  against  his  in- 
dorsee 

Point  Involved:  Whether  one  who  endorses  "without 
recourse"  can  be  held  for  the  invalidity  of  the  note? 

Brewer,  J.:  "*  *  *  the  restriction  is  only  as  to 
his  liability  as  indorser  and  in  no  manner  affects  his  rela- 
tion to  the  paper  as  vendor.  An  unqualified  indorsement 
is  the  assumption  of  a  conditional  liability.     *     *     * 

"Without  recourse  does  away  with  this  conditional  lia- 
bility. It  leaves  the  indorsement  simply  as  a  transfer  of 
title,  and  the  indorser  liable  only  as  vendor ;  yet  it  leaves 


LIABILITY  OF  PARTIES  729 

him  a  vendor  and  divests  him  of  none  of  the  liabilities  of 
the  vendor.  It  makes  the  transaction  the  equivalent  of  a 
delivery  of  paper  payable  to  bearer  and  transferable  by 
delivery.  Independent  therefore  of  any  matter  of  indorse- 
ment, what  implied  warranty  is  there  in  the  transfer  of  a 
promissory  note  ?  Two  things  are  clear  under  the  author- 
ities: first,  that  there  is  an  implied  warranty  of  the 
genuineness  of  the  signatures ;  and  second,  that  there  is 
no  warranty  of  the  solvency  of  the  parties  *  *  *. 
But  in  the  case  at  bar  the  signature  of  the  maker  was 
genuine.  The  objection  is  that  it  was  never  his  legal  obli- 
gation to  the  full  amount  of  what  it  purported  to  be.  How 
far  is  there  any  implied  warranty  in  this  respect!  [Here 
the  Court  reviews  authorities.]  These  authorities  fully 
sustain  the  ruling  of  the  district  court.  *  *  *  By  all 
these  authorities  there  is  an  implied  warranty  against 
such  a  defect  and  the  vendor  is  liable  for  the  breach 
thereof.     *     *     V 

Question  493:  What  was  the  defect  in  the  note  in  question? 
In  what  manner  did  defendant  sign?  Was  he  held  liable? 
Why?  Does  such  an  indorser  warrant  solvency?  Does  he 
warrant  genuineness  of  prior  signatures? 

Sec.  351.    Liability  of  Unqualified  Endorser. 

Case  No.  494.  Uniform  Negotiable  Instruments  Act, 
Sec.  66. 

"Every  endorser  who  indorses  without  qualification, 
warrants  to  all  subsequent  holders  in  due  course : 

"1.  The  matters  and  things  mentioned  in  subdivisions 
one,  two,  and  three,  of  the  next  preceding  section ;  and 

"2.  That  the  instrument  is  at  the  time  of  his  endorse- 
ment valid  and  subsisting. 

"And,  in  addition,  he  engages  that  on  due  presentment 
it  shall  be  accepted,  or  paid,  or  both,  as  the  case  may  be, 
according  to  its  tenor,  and  that  if  it  be  dishonored,  and 
the  necessary  proceedings  on  dishonor  be  duly  taken,  he 
will  pay  the  amount  thereof  to  the  holder,  or  to  any  subse- 
quent indorser  who  may  be  compelled  to  pay  it." 


730  NEGOTIABLE  PAPER 

Question  494:  (1.)  What  does  an  unqualified  indorser  war- 
rant in  his  capacity  as  vendor  ? 

(2.)     What  is  his  contract  as  indorser  ? 

Case  No.  495.    Dale  v.  Gear,  38  Conn.  15. 

Facts:  Dale  as  indorsee  sues  Gear  as  indorser  on  a 
note.  The  defendant  pleads  as  a  defense  that  it  was  or- 
ally agreed  between  them  that  the  defendants  liability 
should  be  as  if  he  signed  ' '  without  recourse. ' ' 

Point  Involved:  Whether  an  indorser  as  against  his 
immediate  indorsee  can  introduce  parol  evidence  of  an 
agreement  to  qualify  the  indorsement. 

Butler,  C.  J.:  "We  have  given  this  case  the  consid- 
eration which,  as  involving  an  important  commercial 
question,  it  has  seemed  to  require,  and  we  are  of  opinion 
that  the  plea  cannot  be  sustained  on  principle  or  by  au- 
thority. 

"First,  it  is  not  sustainable  on  principle. 

1 '  The  rule  that  parol  evidence  is  not  admissible  to  con- 
tradict or  vary  a  written  contract  is  founded  in  the  high- 
est principles  of  public  policy  and  there  is  no  class  of  con- 
tracts to  which  it  should  be  more  inflexibly  applied  than 
to  those  connected  with  bills  of  exchange  and  promissory 
notes.     *     *     *   • 

"But  it  has  sometimes  been  claimed,  and  is  claimed  in 
support  of  the  plea  in  this  case,  that  notwithstanding  the 
rule  is  so  applied  in  favor  of  a  bona  fide  holder  to  whom 
the  note  has  been  negotiated,  yet,  as  between  the  indorser 
and  the  indorsee,  the  original  parties  to  the  contract  of 
indorsement,  the  rule  should  not  be  applied.  But  the 
answer  must  be,  that  the  contract  of  indorsement  is  im- 
plied by  law  as  clearly  and  perfectly  from  the  blank  in- 
dorsement of  a  negotiable  note,  irrespective  of  any  con- 
tingency of  negotiation  as  if  written  out  in  full  when 
indorsed.  And  if,  as  between  the  original  parties,  there 
is  any  equity  existing  dehors  the  instrument,  which  should 
prevent  the  indorsee  from  enforcing  the  contract,  it  must 
be  set  up  as  an  equity.     *     *     * 


LIABILITY  OF  PARTIES  731 

"There  are  four  classes  of  cases  in  which  as  excep- 
tional cases,  and  as  between  the  original  parties,  indorser 
and  indorsee,  any  relation,  antecedent  agreement,  or  state 
of  facts  from  which  a  controlling  equity  arises,  may  be 
pleaded  and  proved  by  parol  in  bar  of  an  action  on  the 
warranty.  Thus  the  relation  of  principal  and  agent  may 
be  shown — for  the  agent  takes  no  title  or  warranty  from 
the  indorser,  but  holds  as  agent.  So,  second,  it  may  be 
shown,  that  the  note  was  indorsed  to  the  holder  for  some 
special  purpose  and  is  holden  in  trust,  as  where  it  is  in- 
dorsed and  delivered  for  collection  merely.  Lawrence  v. 
Stonington  Bank,  6  Conn.  521,  is  an  example  of  this  class 
of  cases  in  our  own  reports.  In  like  manner,  thirdly,  the 
relation  of  principal  and  surety  may  be  shown,  and  that 
the  indorsement  was  made  at  the  request  and  for  the  ac- 
commodation of  the  immediate  indorsee,  for  the  relation 
forbids  the  enforcement  of  the  contract.  Such  was  Case 
v.  Spaulding,  24  Conn.  578.  So,  fourthly,  it  may  be  shown 
that  there  was  an  equity  arising  from  an  antecedent  trans- 
action including  an  agreement  that  the  note  should  be 
taken  in  sole  reliance  on  the  responsibility  of  the  maker 
and  that  it  was  indorsed  in  order  to  transfer  the  title  in 
pursuance  of  such  agreement,  and  that  the  attempt  to 
enforce  is  a  fraud.  Such  was  Downer  v.  Chesebrough, 
39  Conn.  39.  These  exceptions  illustrate  the  rule.  But 
this  plea  shows  no  equity,  trust,  equitable  relation,  or 
equity  connected  with  an  antecedent  transaction  consti- 
tuting a  consideration  for  the  agreement,  or  which  would 
justify  a  court  of  equity  in  interfering  to  prevent  an  en- 
forcement of  the  contract  of  warranty  which  the  law  im- 
plies. It  presents  a  naked  case  of  an  attempt  to  prove 
by  parol  that  a  clear  and  unambiguous  contract  of  war- 
ranty is  not  such,  and  to  contradict  it  in  terms — to  turn 
an  indorsement  without  restriction,  before  maturity  into 
a  restricted  [qualified]  indorsement.  Such  a  plea  cannot 
be  sustained  without  a  violation  of  essential  principles." 

Question  495:  What  is  the  rule  of  this  case?  What  excep- 
tions did  the  Court  make  ? 

{Contra  to  this  case :    True  v.  Bullard,  45  Nebr.  409.) 


PART    XVI 

PROCEDURE  TO  FIX  LIABILITY 

(Except  presentment  for  acceptance  and  protest.    See 
Chapters  68  and  69.) 

Chapter  Sixty-three.    Presentment  for  Payment. 
Chapter  Sixty-four.      Notice  of  Dishonor. 

CHAPTER    SIXTY-THREE 
PRESENTMENT  FOR  PAYMENT 

§  352.  Not     necessary     to    'charge  §  358.  Presentment     must     be      to 

party  primarily  liable.  proper  person. 

§  353.  Necessary   to  charge   drawer  §  359.  Presentment  for  payment  not 

and  indorsers.  required  when,  and  excused 

§  354.  Presentment  must  be  at  date  when. 

of  maturity.  §  360.  Presentment      for      payment 

§  355.  Presentment     must     be     at  dispensed  with  when. 

proper  place.  §  361.  Making    instrument    payable 

§  356.  Presentment  must  consist  in  at  bank  as  order  on  bank  to 

exhibition  of  instrument.  pay. 
§  357.  Presentment     must     be     at 

proper  hour. 

Sec.  352.    Presentment  for  Payment  Not  Necessary  to 
Charge  Party  Primarily  Liable. 

Case  No.  496.    Hyman  v.  Doyle,  103  N.  Y.  Suppl.  778. 

Gieoerich,  J. :    ' '  *     *     *     The  only  effect  of  qualify- 
ing a  promise  to  pay  by  a  mere  specifying  of  a  demand 

732 


PRESENTMENT  FOR  PAYMENT  733 

at  a  fixed  time  and  place  is  that  if  the  debtor  is  ready 
with  the  money  at  that  time  and  place,  and  no  demand  is 
made,  he  is  exonerated  from  paying  costs  and  interest  for 
subsequent  time,  provided  he  keeps  ready,  pays  the 
money  into  court  when  sued,  and  pleads  these  facts  in 
his  answer.' ' 

Question  496:  (1.)  A  makes  B  a  note  for  $500  due  one  year 
from  date.  B  does  not  present  the  note  to  A  at  its  maturity,  but 
presents  it  one  year  subsequently  and  then  brings  suit.  Can  A 
set  up  the  failure  to  present  the  note  to  him  when  it  matured  ? 
Can  B  collect  interest  for  the  two  years?  Could  A  in  any  way 
stop  the  accruing  interest  after  the  payment  of  the  note  ? 

(2.)  What  is  the  purpose  of  making  a  negotiable  instrument 
payable  at  a  particular  place  ? 

(Note:  It  is  never  necessary  to  present  a  note  to  the  maker 
for  payment  at  maturity  in  order  to  charge  a  liability  upon  him. 
This  is  true  in  respect  to  any  party  primarily  liable.  A  tender 
of  the  amount  due  on  the  note  to  the  holder,  would  stop  accruing 
interest  after  maturity.  The  purpose  of  making  an  instrument 
payable  at  a  particular  place  has  its  obvious  advantages.) 

Sec.  353.    Presentment  for  Payment  to  Party  Primarily 
Liable  Necessary  to  Charge  Parties  Secondarily  Liable. 

(Note:  See  the  following  sections.  The  party  secondarily 
liable  is  entitled  to  have  the  holder  take  certain  steps  to  secure 
payment  from  the  party  primarily  liable,  who  as  between  all 
parties  ought  to  pay,  in  order  to  be  in  a  position  to  apply  for  pay- 
ment to  indorser  or  drawer.  The  first  of  these  is  presentment  to 
the  party  primarily  liable  for  payment,  on  the  proper  day  and  in 
the  proper  manner.) 

Sec.  354.  Presentment  for  Payment  in  Order  to  Fix 
Liability  of  Parties  Secondarily  Liable  Must  be  Date  of 
Maturity.    When  Demand  Paper  Matures. 

Case  No.  497.  Uniform  Negotiable  Instruments  Act, 
Sec.  71. 

"Where  the  instrument  is  not  payable  on  demand  pre- 
sentment must  be  made  on  the  day  it  falls  due.    Where 


734  NEGOTIABLE  PAPER 

it  is  payable  on  demand,  presentment  must  be  made 
within  a  reasonable  time  after  its  issue,  except  that  in 
the  case  of  a  bill  of  exchange,  presentment  for  payment 
will  be  sufficient  if  made  within  a  reasonable  time  after 
the  last  negotiation  thereof.' ' 

Question  497 :  On  what  date  must  presentment  for  payment 
be  made  where  the  instrument  is  not  payable  on  demand  ? 

Case  No.  498.  Columbian  Bank.  Co.  v.  Bowen,  134 
Wis.  218. 

Facts:  Suit  against  Bowen  as  the  payee-indorser  of  a 
draft  drawn  by  the  Farmers  &  Merchant's  Bank  of  Bar- 
ron, Wisconsin,  on  the  National  Bank  of  North  America, 
at  Chicago,  Illinois.  It  was  payable  on  demand  and  dated 
and  issued  June  10,  1903.  Defendant  as  the  payee  in- 
dorsed the  draft  to  A.  R.  Tabbert,  to  whom  it  was  for- 
warded by  mail  June  16,  1903,  and  received  by  him  June 
20th  thereafter.  He  was  at  Spokane,  temporarily,  and  on 
his  way  to  San  Francisco.  On  July  14, 1903,  he  indorsed 
and  sold  the  draft  to  the  Columbian  Banking  Co.,  the 
plaintiff  in  this  suit.  On  the  same  day  the  draft  was  for- 
warded to  the  drawee  bank  for  payment,  which  was  re- 
fused, whereupon  it  was  duly  protested  for  non-payment 
by  a  notary  public  who  forwarded  a  manifest  thereof  with 
notices  of  protest  for  Tabbert,  the  plaintiff  and  the  de- 
fendant. Plaintiff  on  receiving  the  manifest  and  notices 
sent  one  to  defendant  at  Barron,  and  one  to  the  drawer. 
The  drawer  went  into  receivership  and  only  a  part  of  the 
draft  was  realized  from  the  assets.  Defense,  that  defend- 
ant was  released  from  liability  because  of  the  period  in- 
tervening between  his  parting  with  the  draft  and  the 
presentation  thereof  to  the  drawee  for  payment. 

Marshall,  J.:  "The  primary  question  discussed  by 
appellant's  counsel,  it  is  believed,  is  fully  covered  by  the 
negotiable  instrument  law.  There  are  a  multitude  of  de- 
cisions regarding  the  character  of  a  bill  of  exchange  and 
that  of  a  check,  as  those  terms  are  used  in  business  trans- 


PRESENTMENT  FOR  PAYMENT  735 

actions,  and  to  what  extent  the  incidents  of  one  are  iden- 
tical with  those  of  the  other,  which  decisions  are  so  vari- 
ant in  their  phrasing  of  the  matter  as  to  produce  more 
or  less  confusion  in  respect  thereto  with  many  apparent, 
and  some  real,  conflicts,  to  remedy  which  was  one  of  the 
principal  objects  of  the  law. 

"To  that  end  it  was  provided  in  sec.  1680,  'A  bill  of 
exchange  is  an  unconditional  order  in  writing  addressed 
by  one  person  to  another,  signed  by  the  person  giving  it, 
requiring  the  person  to  whom  it  is  addressed  to  pay  on 
demand  or  at  a  fixed  or  determinable  future  time  a  sum 
certain  in  money  to  order  or  bearer, '  and  it  was  further 
provided  in  sec.  1684-1,  'A  check  is  a  bill  of  exchange 
drawn  on  a  bank,  payable  on  demand. ' 

"As  to  whether  the  incidents  of  the  species  of  bills  of 
exchange  last  mentioned  are  the  same  as  those  of  bills  of 
exchange  generally,  it  was  further  provided  in  the  section 
last  referred  to,  l  Except  as  herein  otherwise  provided, 
the  provisions  of  this  act  applicable  to  a  bill  of  exchange 
payable  on  demand  apply  to*  a  check. '  The  only  excep- 
tion referred  to  material  to  this  case  is  contained  in  sec. 
1684-2,  in  these  words:  'A  check  must  be  presented  for 
payment  within  a  reasonable  time  after  its  issue  or  the 
drawer  will  be  discharged  from  liability  thereon  to  the 
extent  of  the  loss  caused  by  the  delay." 

"Keeping  in  mind  that  the  discharge  from  liability 
above  referred  to  because  of  unreasonable  delay  after  the 
issuance  of  a  check  in  presenting  it  for  payment  is  of  the 
drawer  only,  and  that  this  action  is  against  the  payee  who 
indorsed  the  instrument  in  question  without  qualification 
and  put  it  in  circulation,  we  turn  to  sec.  1678-1,  which  pro- 
vides, as  to  a  bill  of  exchange  payable  on  demand,  which 
from  the  foregoing  obviously  includes  a  check  or  draft  on 
a  bank  of  the  character  of  the  one  in  question,  'present- 
ment for  payment  will  be  sufficient  if  made  within  a  rea- 
sonable time  after  the  last  negotiation  thereof.' 

"From  the  foregoing  it  seems  plain  that  as  regards  the 
payee  of  such  an  instrument  as  we  have  here,  who  puts 
the  same  in  circulation  with  his  unqualified  indorsement 


736  NEGOTIABLE  PAPER 

thereon  and  all  subsequent  parties  thereto,  so  indorsing 
the  same,  presentment  for  payment  is  sufficient,  as  re- 
gards their  liability,  if  made  within  a  reasonable  time 
after  the  last  negotiation.  A  bill  of  exchange  payable  on 
demand,  regardless  of  its  character,  put  in  circulation,  so 
long  as  its  circulating  character  is  preserved  may  be  out- 
standing without  impairing  the  liability  of  indorsers 
thereof.  Formerly  the  length  of  time  within  which  a  bill 
of  exchange  might  circulate  without  impairing  such  lia- 
bility was  more  or  less  uncertain,  rendering  it  very  diffi- 
cult to  determine  any  one  case  by  the  decision  in  another. 
That  difficulty  was  removed,  so  far  as  practicable,  by  the 
provision  that  only  the  time  need  be  considered  interven- 
ing between  the  last  negotiation  and  the  presentment. 
That  is  recognized  as  a  radical  change  in  the  law  as  it 
formerly  existed.    Selover,  Neg.  Inst.  Law,  Sec.  195. 

"As  to  an  ordinary  bill  of  exchange  put  in  circulation, 
it  was  quite  anciently  held  that  the  period  between  July 
18th  of  one  year  and  January  16th  of  the  next  year  was 
not  necessarily  unreasonable.  Gowan  v.  Jackson,  20 
Johns.  176.  Perhaps  one  might  now  keep  a  bill  of  ex- 
change for  such  length  of  time  as  to  destroy  its  circulat- 
ing character  notwithstanding  he  ultimately  passed  it 
along  to  another  person,  but  that  situation,  as  we  view  the 
case,  does  not  exist  here. 

"Applying  the  law  as  aforesaid  to  the  facts  of  this 
case  it  is  readily  seen  that  the  delay  in  presenting  the 
paper  for  payment  between  its  date  and  the  negotiation 
to  the  bank  at  San  Francisco  is  immaterial.  Appellant 
unqualifiedly  indorsed  the  paper  and  put  it  in  circulation 
by  sending  it  to  Tabbert  at  a  distant  part  of  the  country, 
probably  knowing  that  he  was  a  traveler.  Tabbert  re- 
ceived the  paper  while  journeying  with  the  intention  of 
going  to  San  Francisco  and  held  it  till  he  arrived  there 
and  then  negotiated  it.  It  was  promptly  presented  for 
payment  thereafter  and  so  in  time,  as  regards  that  cir- 
cumstance, to  preserve  the  liability  of  appellant. 

"The  Court  decided,  as  indicated,  that  Tabbert  was  a 
traveler  with  San  Francisco  as  his  destination  and  prop- 


PRESENTMENT  FOR  PAYMENT  737 

erly  held  that  such  circumstance  sufficiently  explained,  if 
any  explanation  were  necessary,  the  lapse  of  time  between 
his  reception  of  the  paper  and  his  negotiation  thereof, 
preserving  its  circulating  character  and  warranting  the 
finding  that  the  respondent  came  thereby  in  due  course. 

"The  point  is  made  that  the  instrument  was  not  pre- 
sented to  the  dr*awee  for  payment  during  banking  hours. 
The  negotiable  instrument  law  at  sec.  1678-2  provides  that 
'  Presentment  for  payment,  to  be  sufficient,  must  be  made : 
*  *  *  at  a  reasonable  hour  on  a  business  day  *  *  V 
The  evidence  shows  that  the  paper,  after  taking  its  course 
through  the  clearing  house,  was  presented  to  the  drawee 
for  payment  on  the  afternoon  of  the  same  day  between  the 
hours  of  3  and  6  o'clock.  The  proof  is  to  the  effect  that 
such  was  the  customary  way  of  doing  such  business  in 
Chicago,  where  the  drawee  was  located.  That  is,  as  we 
understand  it,  the  business  day  of  the  bank  continued 
after  the  closing  of  the  clearing-house  transactions  so 
as  to  enable  banks,  holding  paper  for  collection,  refused 
recognition  in  such  transactions,  to  present  the  same  for 
payment  as  was  done  in  this  case.  That  satisfies  the  stat- 
ute. What  constitutes  business  hours  of  a  bank,  within 
the  meaning  of  the  statute,  has  reference  to  the  general 
custom  at  the  place  of  the  particular  transaction  in  ques- 
tion. In  case  of  a  transaction  occurring  in  a  foreign  ju- 
risdiction, as  in  the  instance  in  question,  the  Court  cannot 
take  judicial  notice  of  what  constitutes  reasonable  hours 
on  a  business  day.  1  Daniel,  Neg.  Inst.  (5th  ed.)  Sec.  601. 
It  is  a  matter  of  proof,  though  in  case  of  the  notarial  cer- 
tificate of  the  transaction,  as  here,  being  regular  so  as  to 
furnish  prima  facie  proof  that  the  paper  was  duly  pre- 
sented for  payment,  that  raises  the  presumption  that  the 
presentment  was  made  at  a  proper  time.  Cayuga  Co. 
Bank  v.  Hunt,  2  Hill  635. 

"By  the  Court. — Judgment  affirmed." 

Question  498:  (1.)  Define  a  bill  of  exchange;  a  check. 
(2.)  What  is  the  exception  to  the  rule  that  the  law  applicable 
to  a  bill  of  exchange  is  applicable  to  a  check  ?  (3.)  To  whom 
does  this  exception  apply? 


738  NEGOTIABLE  PAPER 

Case  No.  499.  Uniform  Negotiable  Instruments  Act, 
Sec.  85. 

''Every  negotiable  instrument  is  payable  at  the  time 
fixed  therein  without  grace.  When  the  date  of  maturity 
falls  upon  Sunday,  or  a  holiday,  the  instrument  is  pay- 
able on  the  next  succeeding  business  day.  Instruments 
falling  due  on  Saturday  are  to  be  presented  for  pay- 
ment on  the  next  succeeding  business  day,  except  that 
instruments  payable  on  demand  may,  at  the  option  of  the 
holder,  be  presented  for  payment  before  twelve  o'clock 
noon  on  Saturday  when  the  entire  day  is  not  a  holiday. ' ' 

Question  499:  (1.)  What  are  days  of  grace?  Are  they 
abolished  by  the  negotiable  instruments  act  ? 

(2.)  When  an  instrument  falls  due  on  Sunday  or  a  holiday 
what  is  the  rule? 

(3.)  When  an  instrument  falls  due  on  Saturday  when  is  it  to 
be  presented  for  payment  ? 

(Note :  This  section  in  some  states  has  some  amendments.  A 
few  states  allow  days  of  grace.) 

Sec.  355.    Presentment  for  Payment  Must  Be  at  Proper 

Place. 

Case  No.  500.  Uniform  Negotiable  Instruments  Act, 
Sec.  73. 

"  Presentment  for  payment  is  made  at  the  proper 
'place : 

"1.  Where  a  place  of  payment  is  specified  in  the  in- 
strument and  it  is  there  presented. 

"2.  Where  no  place  of  payment  is  specified  and  the 
address  of  the  person  to  make  the  payment  is  given  in 
the  instrument  and  it  is  there  presented. 

"3.  Where  no  place  of  payment  is  specified  and  no 
address  is  given  and  the  instrument  is  presented  at  the 
usual  place  of  business  or  residence  of  the  person  to 
make  payment. 

"4.  In  any  other  case,  if  presented  to  the  person  to 
make  payment  wherever  he  can  be  found,  or  if  presented 
at  his  last  known  place  of  business  or  residence.,, 


PRESENTMENT  FOR  PAYMENT  739 

Question  500:  State  what,  under  the  varying  circumstances, 
is  the  proper  place  for  presentment  for  payment. 

Case  No.  501.    Barnes  v.  Vaughn,  6  R.  I.  259. 

Facts :  Suit,  against  indorser.  Defense,  that  proper 
procedure  has  not  been  taken  to  charge  him  in  that  no 
demand  on  the  maker  was  made,  at  the  proper  place  or 
in  the  proper  manner.  The  facts  were  that  the  note  not 
being  payable  at  any  certain  place  by  its  terms  was  left 
for  collection  at  a  certain  bank,  and  the  cashier  of  the 
bank  sent  a  printed  slip  to.  the  maker  to  come  in  and 
pay  it. 

Boswoeth,  J.:  "The  defense  to  this  suit  is  that  no 
legal  and  proper  demand  was  made  on  the  maker  of  the 
note;  and  that  therefore  the  indorser  who  is  here  sued 
is  discharged.  The  rule  of  the  common  law  is  that  in 
order  to  charge  the  indorser  demand  must  be  made  on 
the  maker  for  payment  on  the  very  day  on  which  the  note 
becomes  due.  In  case  the  note  on  its  face  is  made  pay- 
able at  a  particular  place,  as  at  a  bank  named,  it  is  nec- 
essary, and  only  necessary,  to  make  demand  at  such 
place ;  but  if  no  place  of  payment  is  named  in  the  note 
at  which  the  note  is  payable,  it  is  necessary  to  present 
the  note  to  the  maker  personally  or  at  his  place  of  abode 
or  business  before  the  indorser  can  be  made  chargeable. 


Question  501: 

Sec.  356.    Presentment  Must  Consist  in  Exhibition  of  the 

Instrument. 

(See  case  just  preceding.) 

Sec.  357.    Presentment  Must  Be  at  Proper  Hour. 
(See  Columbian  Bank.  Co.  v.  Bowen,  143  Wis.  218.) 


740  NEGOTIABLE  PAPER 

Case  No.  502.     Uniform  Instr.  Act,  Sec.  75. 

''Where  the  instrument  is  payable  at  a  bank,  present- 
ment for  payment  must  be  made  during  banking  hours, 
unless  the  person  to  make  payment  has  no  funds  there 
to  meet  it  at  any  hour  during  the  day,  in  which  case  pre- 
sentment at  any  hour  before  the  bank  is  closed  on  that 
day  is  sufficient." 

Question  502:  (1.)  If  the  instrument  is  not  payable  at  a 
bank  within  what  hours  must  presentment  be  made  to  be  suffi- 
cient to  charge  parties  secondarily  liable  ?  ( See  Columbian  Bank 
v.  Bowen,  Case  No.  498,  supra.) 

(2.)  If  it  is  payable  at  a  bank,  within  what  time  must  it  be 
presented  ? 

Case  No.  503.  German-American  Bank  of  Rochester 
v.  Milliman,  65  N.  Y.  Suppl.  242. 

Facts:  Suit  by  an  indorsee  on  a  note  against  the 
maker.  The  note  was  payable  at  Central  Bains,  whose 
banking  hours  were  from  10  A.  M.  until  4  P.  M.  On  the 
date  of  maturity  the  note  was  presented  at  the  Central 
Bank  and  refused,  because  of  no  funds  there  to  pay  it. 
About  5  minutes  to  4  Milliman  deposited  enough  to  pay 
the  note,  and  then  went  to  plaintiff,  the  German  Ameri- 
can Bank,  and  informed  the  cashier  of  that  fact.  The 
cashier  informed  him  that  the  note  had  already  gone  to 
protest  and  he  would  have  to  pay  the  protest  fees.  De- 
fendant refused  and  this  a  suit  against  him  on  the  note 
for  the  amount  thereof  and  protest  fees  and  costs  of 
suit. 

Point  Involved:  Whether  the  party  liable  on  an  in- 
strument has  all  of  the  day  of  maturity  till  the  close  of 
business  hours  or  of  banking  hours  if  payable  at  a  bank, 
to  pay  the  instrument. 

Sutherland,  J. :  [After  reviewing  many  authorities] 
(i  My  conclusion  is  that  the  maker  of  this  note  in  suit  was 
allowed,  by  commercial  usage,  until  4  o'clock,  to  deposit 
at  the  Central  Bank  the  money  necessary  to  cover  the 
note ;  and  such  deposit  having  been  made  15  minutes  be- 


PRESENTMENT  FOR  PAYMENT  741 

fore  4  o'clock,  the  maker  is  not  in  default.  Although 
demand  for  the  payment  of  the  note  was  previously 
made,  and  the  note  protested  for  non-payment,  the  pro- 
test became  of  no  avail  on  deposit  of  the  amount  of  the 
note  and  interest,  and  the  maker  cannot  be  compelled  to 
pay  the  protets  fees  thus  incurred.  I  think  this  should 
be  held  to  be  the  rule  whether  we  regard  the  protest  of 
the  note  earlier  in  the  day  as  wholly  bad  or  conditionally 
good, — good  on  condition  that  the  maker  did  not,  before 
the  close  of  banking  hours,  fulfill  his  engagement  by 
making  his  account  good  at  the  bank  where  the  note  was 
payable.  *  *  *  The  judgment  appealed  from  is 
therefore  modified  so  that  plaintiff  shall  recover  of  the 
defendant  [the  amount  of  the  note  with  accrued  interest 
and  without  protest  fees  or  costs  of  suit] . 

Question  503:  What  were  the  facts  in  this  case,  the  point  in 
controversy  and  the  Court's  decision? 

Sec.  358.    Presentment  Must  Be  to  Proper  Person. 

Case  No.  504.  Uniform  Negotiable  Instruments  Act, 
Sees.  76-78. 

Sec.  76.  Where  the  person  primarily  liable  on  the 
instrument  is  dead,  and  no  place  of  payment  is  specified, 
presentment  for  payment  must  be  made  to  his  personal 
representative  if  such  there  be,  and  if  with  exercise  of 
reasonable  diligence,  he  can  be  found. 

Sec.  77.  Where  the  persons  primarily  liable  on  the 
instrument  are  liable  as  partners,  and  no  place  of  pay- 
ment is  specified,  presentment  for  payment  may  be 
made  to  any  one  of  them,  even  though  there  has  been  a 
dissolution  of  the  firm. 

Sec.  78.  Where  there  are  several  persons,  not  part- 
ners, primarily  liable  on  the  instrument,  and  no  place  of 
payment  is  specified,  presentment  must  be  made  to  them 
all. 


742  NEGOTIABLE  PAPER 

Question  504:     (1.)     If  the  person  primarily  liable  on  the 
instrument  is  dead,  what  is  the  rule  ? 

(2.)     If  the  parties  liable  are  partners,  what  is  the  rule? 
(3.)     If  they  are  not  partners? 

Sec.  359.    Presentment  for  Payment  Not  Required  When 
and  Excused  When. 


Case  No.  505.  Uniform  Negotiable  Instruments  Act, 
Sees.  79,  80. 

"Presentment  for  payment  is  not  required  in  order  to 
charge  the  drawer  where  he  has  no  right  to  expect  or  re- 
quire that  the  drawee  or  acceptor  will  pay  the  instru- 
ment. 

"Presentment  for  payment  is  not  required  to  charge 
an  indorser  where  the  instrument  was  made  or  accepted 
for  his  accommodation  and  he  has  no  reason  to  expect 
the  instrument  will  be  paid  if  presented. " 

Question  505:     (1.)     What  is  the  rule  expressed  in  Sec.  79? 

(2.)  A  for  B's  accommodation  in  order  to  enable  B  to  obtain 
money  from  C  makes  a  note  to  B  for  $500.  B  endorses  this  note 
to  C.  At  maturity  C  makes  no  presentment  to  A.  C  afterwards 
sues  B  as  indorser.  Did  the  failure  in  making  presentment  at 
maturity  lose  C  his  remedy  against  B  ?    Why  ? 

Case  No.  506.  Uniform  Negotiable  Instruments  Act, 
Sec.  81. 

"Delay  in  making  presentment  for  payment  is  excused 
when  the  delay  is  caused  by  circumstances  beyond  the 
control  of  the  holder,  and  not  imputable  to  his  default, 
misconduct  or  negligence.  When  the  cause  of  delay 
ceases  to  operate,  presentment  must  be  made  with  rea- 
sonable diligence." 

Question  506:    When  is  delay  in  making  presentment  excused  ? 


PRESENTMENT  FOR  PAYMENT  743 

Sec.  360.    Presentment  for  Payment  Dispensed  With 

When. 

Case  No.  507.  Uniform  Negotiable  Instruments  Act, 
Sec.  82. 

" Presentment  for  payment  is  dispensed  with: 

"1.  When  after  the  exercise  of  reasonable  diligence 
presentment  as  required  by  this  act  can  not  be  made. 

1 '  2.  Where  the  drawee  is  a  fictitious  person. 

"3.  By  waiver  of  presentment,  express  or  implied." 

Question  507:  When  is  presentment  for  payment  dispensed 
with  ? 

Case  No.  308.  Bessenger  v.  Wenzel,  125  N.  W.  750 
(Mich.). 

Facts:  The  note  in  question  was  made  by  a  corpora- 
tion of  which  the  indorsers  were  directors  and  managers, 
and  they  knew  that  the  corporation  had  no  money  to  pay 
the  note  and  had  assured  the  payee  it  could  not  be  paid 
at  maturity.  Moore,  J.,  held  that  the  necessity  for  pre- 
sentment for  payment  was  dispensed  with  by  implied 
waiver. 

Question  508:  What  were  the  facts  in  this  case  and  what  did 
the  Court  hold? 

Sec.  361.    Making  Instrument  Payable  at  Bank  as  Order 
on  Bank  to  Pay. 

Case  No.  509.  Uniform  Negotiable  Instruments  Act, 
Sec.  87. 

"Where  the  instrument  is  made  payable  at  a  bank  it  is 
equivalent  to  an  order  on  the  bank  to  pay  the  same  for 
the  account  of  the  principal  debtor  thereon.' '  (Omitted 
in  Illinois  and  Nebraska  law.) 

Question  509:  A  makes  a  note  payable  at  M  bank.  The  holder 
presents  it  for  payment.  A  has  funds  in  the  bank  sufficient  to 
cover  the  note.  The  bank  pays  the  note  and  debits  A's  account. 
A  had  never  said  anything  to  the  bank  about  the  note.  He  has 
a  defense  to  the  note ;  and  sues  the  M  bank  for  paying  without 
authority.    Is  the  bank  protected? 


CHAPTER    SIXTY-FOUR 
NOTICE  OF  DISHONOR 


§  362.  Notice   of  dishonor,  its  pur-  quired  when,  delay  in  giv- 

pose,  etc!  ing    notice    excused    when, 

§  363.  Waiver    of    notice,    not    re-  etc. 


Sec.  362.    Notice  of  Dishonor,  Its  Purpose,  Etc. 

Case  No.  510.  Uniform  Negotiable  Instruments,  Act, 
Sees.  89-108. 

"[Sec.  89.]  Except  as  herein  otherwise  provided, 
when  a  negotiable  instrument  has  been  dishonored  by 
non-acceptance  or  non-payment,  notice  of  dishonor  must 
be  given  to  the  drawer  and  to  each  indorser,  and  any 
drawer  or  indorser  to  whom  such  notice  is  not  given  is 
discharged. 

"  [Sec.  90.]  The  notice  may  be  given  by  or  on  behalf 
of  the  holder,  or  by  or  on  behalf  of  any  party  to  the  in- 
strument who  might  be  compelled  to  pay  it  to  the  holder, 
and  who,  upon  taking  it  up,  would  have  a  right  to  reim- 
bursement from  the  party  to  whom  the  notice  is  given. 

"[Sec.  91.]  Notice  of  dishonor  may  be  given  by  an 
agent,  either  in  his  own  name  or  in  the  name  of  any  party 
entitled  to  give  notice,  whether  that  party  be  his  principal 
or  not. 

"  [Sec.  92.]  Where  notice  is  given  by  or  on  behalf  of 
the  holder,  it  inures  for  the  benefit  of  all  subsequent 
holders  and  all  prior  parties  who  have  a  right  of  recourse 
against  the  party  to  whom  it  is  given. 

"  [Sec.  93.]     Where  notice  is  given  by  or  on  behalf  of 

744 


NOTICE  OF  DISHONOR  745 

a  party  entitled  to  give  notice,  it  inures  for  the  benefit  of 
the  holder  and  all  parties  subsequent  to  the  party  to 
whom  notice  is  given. 

"[Sec.  94.]  Where  the  instrument  has  been  dishon- 
ored in  the  hands  of  an  agent,  he  may  either  himself  give 
notice  to  the  parties  liable  thereon  or  he  may  give  notice 
to  his  principal.  If  he  gives  notice  to  his  principal,  he 
must  do.  so  within  the  same  time  as  if  he  were  the  holder 
and  the  principal  upon  the  receipt  of  such  notice,  has 
himself  the  same  time  for  giving  notice  ae  if  the  agent 
had  been  an  independent  holder. 

"  [Sec.  95.]  A  written  notice  need  not  be  signed,  and 
an  insufficient  written  notice  may  be  supplemented  and 
validated  by  verbal  communication.  A  misdescription  of 
the  instrument  does  not  vitiate  unless  the  party  to  whom 
the  notice  is  given  is  in  fact  misled  thereby. 

"  [Sec.  96.]  The  notice  may  be  in  writing  or  merely 
oral  and  may  be  given  in  any  terms  which  sufficiently 
identify  the  instrument  and  indicate  that  it  has  been  dis- 
honored by  non-acceptance  or  non-payment.  It  may  in 
all  cases  be  given  by  delivering  it  personally  or  through 
the  mails. 

"[Sec.  97.]  Notice  of  dishonor  may  be  given  either 
to  the  party  himself  or  to  his  agent  in  that  behalf. 

"[Sec.  98.]  Where  any  party  is  dead,  and  his  death 
is  known  to  the  party  giving  notice,  the  notice  must  be 
given  to  a  personal  representative,  if  there  be  one,  and 
if  with  reasonable  diligence  he  can  be  found.  If  there  be 
no  personal  representative,  notice  may  be  sent  to  the 
last  residence  or  last  place  of  business  of  the  deceased. 

"  [Sec.  99.]  Where  the  parties  to  be  notified  are  part- 
ners, notice  to  any  one  partner  is  notice  to  the  firm,  even 
though  there  has  been  a  dissolution. 

"  [Sec.  100.]  Notice  to  joint  parties  who  are  not  part- 
ners must  be  given  to  each  of  them,  unless  one  of  them 
has  authority  to  receive  such  notice  for  the  others. 

"[Sec.  101.]  Where  a  party  has  been  adjudged  a 
bankrupt  or  an  insolvent,  or  has  made  an  assignment  for 


746  NEGOTIABLE  PAPER 

the  benefit  of  his  creditors,  notice  may  be  given  either  to 
the  party  himself  or  to  his  trustee  or  assignee. 

"[Sec.  102.]  Notice  may  be  given  as  soon  as  the  in- 
strument is  dishonored,  and  unless  delay  is  excused  as 
hereinafter  provided,  must  be  given  within  the  times 
fixed  by  this  act. 

"[Sec.  103.]  Where  the  person  giving  and  the  person 
to  receive  notice  reside  in  same  place,  notice  must  be 
given  within  the  following  times : 

1.  If  given  at  the  place  of  business  of  the  person  to  re- 
ceive notice,  it  must  be  given  before  the  close  of  business 
hours  on  the  day  following. 

2.  If  given  at  his  residence,  it  must  be  given  before  the 
usual  hours  of  rest  on  the  day  following. 

3.  If  sent  by  mail,  it  must  be  deposited  in  the  postofiice 
in  time  to  reach  him  in  the  usual  course  on  the  day  fol- 
lowing. 

"[Sec.  104.]  Where  tne  person  giving  and  the  per- 
son to  receive  notice  reside  in  different  places,  the  notice 
must  be  given  within  the  following  times : 

1.  If  sent  by  mail,  it  must  be  deposited  in  the  postofiice 
in  time  to  go  by  mail  the  day  following  the  day  of  dis- 
honor, or  if  there  be  no  mail  at  a  convenient  hour  on  that 
day  by  the  next  mail  thereafter. 

2.  If  given  otherwise  than  through  the  postofiice,  then 
within  the  time  that  notice  would  have  been  received  in 
due  course  of  mail,  if  it  had  been  deposited  in  the  post- 
ofiice within  the  time  specified  in  the  last  subdivision. 

"[Sec.  105.]  Where  notice  of  dishonor  is  duly  ad- 
dressed and  deposited  in  the  postofiice,  the  sender  is 
deemed  to  have  given  due  notice,  notwithstanding  any 
miscarriage  in  the  mails. 

"  [Sec.  106.]  Notice  is  deemed  to  have  been  deposited 
in  the  postofiice  when  deposited  in  any  branch  postofiice 
or  in  any  letter  box  under  the  control  of  the  postofiice 
department. 

"[Sec.  107.]  Where  a  party  receives  notice  of  dis- 
honor, he  has,  after  the  receipt  of  such  notice,  the  same 
time  for  giving  notice  to  antecedent  parties  that  the 
holder  has  after  dishonor. 


NOTICE  OF  DISHONOR  747 

"  [Sec.  108.]  Where  a  party  has  added  an  address  to 
his  signature,  notice  of  dishonor  must  be  sent  to  that  ad- 
dress; but  if  he  has  not  given  such  address,  then  the 
notice  must  be  sent  as  follows : 

1.  Either  to  the  postoffice  nearest  to  his  place  of  resi- 
dence, or  to  the  postoffice  where  he  is  accustomed  to  re- 
ceive his  letters ;  or, 

2.  If  he  lives  in  one  place  and  has  his  place  of  business 
in  another,  notice  may  be  sent  to  either  place ;  or, 

3.  If  he  is  sojourning  in  another  place,  notice  may  be 
sent  to  the  place  where  he  is  sojourning. 

But  where  the  notice  is  actually  received  by  the  party 
within  the  time  specified  in  this  act,  it  will  be  sufficient 
though  not  sent  in  accordance  with  the  requirements  of 
this  section. " 

Question  510:  (1.)  If  a  negotiable  instrument  is  dishonored 
by  non-acceptance,  what  is  necessary  in  order  to  hold  drawer  and 
indorser  ? 

(2.)     By  or  on  behalf  of  whom  may  the  notice  be  given? 

(3.)  When  the  notice  is  given  by  or  on  behalf  of  the  holder 
to  whose  benefit  does  it  inure  ? 

(4.)  If  given  by  any  one  else  entitled  to  give  notice,  to  whose 
benefit  does  it  inure? 

(5.)  If  the  instrument  is  dishonored  in  the  hands  of  an  agent 
to  whom  may  he  give  notice  ? 

(6.)     Need  the  notice  be  in  writing?    Need  it  be  signed? 

(7.)  To  whom  may  notice  be  given,  in  case  of  death  of  party  ? 
In  case  of  notice  to  partnership?  In  case  of  parties,  jointly 
named,  but  not  partners  ?    In  case  of  notice  to  a  bankrupt  ? 

(8.)     Within  what  time  must  notice  be  given? 

(9.)  Suppose  notice  is  put  in  the  post  office  and  miscarries? 
Is  the  party  for  whom  the  notice  was  meant  bound  ? 

(10.)     To  what  address  must  notice  be  sent? 

Case  No.  511.     Thompson  v.  Williams,  14  Cal.  160. 

Facts:    The  facts  are  stated  in  the  opinion. 

Points  Involved:  (1)  What  notice  to  an  indorser  is 
sufficient  in  substance;  (2)  Where  the  indorser  sought 
to  be  held,  indorsed  after  maturity,  within  what  time 
demand  on  the  maker  must  be  made  to  hold  the  indorser? 


748  NEGOTIABLE  PAPER 

Cope,  J. :  "This  is  an  action  on  a  promissory  note  by 
the  holder  against  the  maker  and  indorser.  The  note  is 
dated  January  5,  1857,  and  by  its  terms,  became  due  on 
the  following  day.  On  the  26th  of  November,  1858,  it 
was  indorsed  by  the  payee  to  the  present  holder,  who, 
on  the  29th  of  the  same  month,  demanded  payment  of  the 
maker,  and  on  the  same  day,  verbally  notified  the  in- 
dorser of  such  demand,  and  that  he  would  be  held  upon 
his  indorsement.  The  question  is  as  to  the  sufficiency  of 
this  notice. 

"Mr.  Justice  Story,  in  his  work  on  Promissory  Notes 
(Section  348),  in  speaking  of  the  form  of  the  notice  of 
dishonor  to  be  given,  or  sent  to  the  indorser,  says :  '  No 
precise  form  of  words  is  necessary  to  be  used  upon  such 
occasions.  Still,  however,  it  is  indispensable  that  it 
should  either  expressly,  or  by  just  and  natural  implica- 
tion, contain,  in  substance,  the  following  requisites :  1. 
A  true  description  of  the  note,  so  as  to  ascertain  its 
identity.  2.  An  assertion  that  it  has  been  duly  presented 
to  the  maker  at  its  maturity  and  dishonored.  3.  That  the 
holder,  or  other  person,  giving  the  notice,  looks  to  the 
person  to  whom  the  notice  is  given  for  reimbursement 
and  idemnity. ' 

"The  notice,  in  this  case,  was  substantially  as  follows : 
The  plaintiff  said  to  the  defendant,  Borland,  the  indorser, 
that  he  had  demanded  payment  of  that  note,  and  desired 
to  know  what  he  intended  to  do  about  it.  Borland  re- 
plied that  he  was  not  liable  to  pay.  The  plaintiff  then 
said  that  his  name  was  upon  it,  and  he  should  endeavor 
to  make  him  liable ;  to  which,  Borland  responded,  that  he 
had  lost  by  the  arrangement,  and  could  not  be  held.  The 
note  was  neither  produced  nor  described,  but  the  Court 
below  found,  as  a  fact,  that  the  defendant  knew  what  note 
was  referred  to,  and  this  finding  was  authorized  by  the 
circumstances,  and  his  language  and  conduct  on  the 
occasion. 

"The  object  of  the  law  in  requiring  a  correct  descrip- 
tion of  the  note  to  be  given  in  the  notice  to  the  indorser, 
is,  that  he  may  be  put  upon  notice  of  the  extent  of  his 


NOTICE  OF  DISHONOR  749 

liability,  and  placed  in  possession  of  the  material  facts 
necessary  to  enable  him  to  secure  the  liability  of  others 
over  to  him,  and  his  own  reimbursement,  upon  payment 
of  the  note.  The  rule  was  not  intended  to  subserve  a 
technical  purpose,  but  to  promote  substantial  justice,  and 
when  it  sufficiently  appears  that  the  indorser,  at  the  time 
of  receiving  the  notice,  knew  what  particular  piece  of 
paper  was  referred  to,  and  could  not  have  been  preju- 
diced by  the  failure  to  describe  it,  he  cannot  be  permitted 
to  object  that  his  information  was  not  communicated  in 
a  particular  manner.  This  view  was  expressed  by  the 
Supreme  Court  of  the  United  States  in  Mills  v.  The  Bank 
of  the  United  States  (11  Wheat.  431).  In  that  case, 
there  was  a  misdescription  of  the  date  of  the  note,  and  it 
was  contended  that  this  defect  in  the  notice  was  fatal  to 
the  right  of  recovery  against  the  indorser.  But  the  Court 
held  that,  under  the  circumstances,  the  notice  was  suffi- 
cient, and  the  following  are  among  the  reasons  given  for 
the  decision:  ' Under  these  circumstances,  the  Court  laid 
down  a  rule  most  favorable  to  the  defendant.  It  directed 
the  jury  to  find  the  notice  good,  if  there  was  no  other 
note,  payable  in  the  office  at  Chillicothe,  drawn  by  Wood 
&  Ebert,  and  indorsed  by  the  defendant.  If  there  was 
no  other  note,  how  could  the  mistake  of  date  possibly 
mislead  the  defendant  ?  If  he  had  indorsed  but  one  note 
for  Wood  &  Ebert,  how  could  the  notice  fail  to  be  full 
and  unexceptional  in  fact!' 

"The  other  objections  to  the  sufficiency  of  the  notice 
are  quite  as  easily  disposed  of.  It  was,  of  course,  im- 
possible for  the  plaintiff  to  show  that  the  demand  of 
payment  was  made  at  the  maturity  of  the  note,  for  it 
was  indorsed  to  him  long  after  it  became  due.  He  was 
required  to  make  the  demand,  not  on  any  particular  day, 
but  within  a  reasonable  time,  and  it  is  not  pretended  that 
he  is  chargeable  with  a  want  of  diligence.  It  is  con- 
tended, however,  that  the  time  at  which  the  demand  was 
made,  should  have  been  stated,  and  that  the  omission  to 
state  it  was  a  fatal  defect  in  the  notice.  We  do  not  think 
so.    A  demand  at  any  time  before  the  notice  was  suffi- 


750  NEGOTIABLE  PAPER 

cient;  and  of  this  the  indorser  was  as  well  advised  as  the 
plaintiff,  for  the  facts  were  known  to  both,  and  the  con- 
clusion was  purely  a  matter  of  law.  There  is  no  analogy 
between  this  case  and  the  case  of  a  note  indorsed  before 
it  is  due.  In  the  letter  case,  the  demand  must  be  made 
on  the  day  the  notes  matures,  or  the  indorser  will  not  be 
liable ;  and  to  fix  his  liability,  the  notice  must  show  that 
the  demand  was  made  at  the  proper  time.  This  is  all 
that  the  case  of  Wynn  v.  Alden  (4  Denio,  163),  amounts 
to.  This  notice  in  that  case,  stated  that  the  note  was 
presented  this  day,  and  payment  refused ;  but  the  notice 
was  not  dated,  and  it  was  held  to  be  defective,  because  it 
was  impossible  to  ascertain  from  the  paper  itself  what 
particular  day  was  intended.  The  Court  intimated,  how- 
ever, that  the  defect  might  have  been  cured  by  the  intro- 
duction of  extraneous  evidence. 

"If  much  time  had  intervened  between  the  demand 
and  notice,  the  question  might  have  arisen,  whether  the 
defendant  was  not  by  reason  of  the  delay,  released  from 
liability.  But  we  do  not  see  how  that  question  could 
have  been  determined  by  a  reference  to  the  notice  itself ; 
we  are  not  aware  of  the  existence  of  any  rule  of  law, 
making  the  contents  of  a  notice  evidence  of  its  service, 
or  the  fact  of  service  a  part  of  its  contents. 

"The  other  requisites,  that  the  demand  was  made  of 
the  maker,  that  he  refused  to  pay,  and  that  the  plaintiff 
looked  to  the  defendant  for  reimbursement  and  in- 
demnity, were  sufficiently  stated  in  the  notice.  Any 
other  construction  would  be  forced  and  unreasonable. 
The  necessary  inference  from  the  statement,  that  pay- 
ment was  demanded  is,  that  it  was  demanded  of  the  per- 
son liable  to  pay,  namely,  the  maker  of  the  note.  The 
fact  of  non-payment  is  shown  by  necessary  implication 
in  the  declaration  of  the  plaintiff,  that  he  intended  to 
look  for  payment  to  the  defendant. 

"It  follows,  that  the  notice  to  the  defendant  was  suffi- 
cient, and  the  judgment  of  the  Court  below  must  be 
affirmed. — Ordered  accordingly." 


NOTICE  OF  DISHONOR  751 

Question  511:  (1.)  In  what  did  the  notice  in  this  case  con- 
sist? Was  it  sufficient?  (2.)  What  were  the  facts  in  Mills  v. 
Bank?  Was  the  notice  good  in  that  case?  (3.)  Where  the 
indorsement  is  made  after  the  note  was  due,  within  what  time 
must  presentment  for  payment  and  notice  of  dishonor  be  made 
in  order  to  hold  such  indorser? 

Case  No.  512.  Amer.  Nat.  Bk.  v.  Nat.  Fertilizer  Co., 
125  Tenn.  328. 

Facts:  Suit  against  the  National  Fertilizer  Co.  as  in- 
dorser. Defense,  among  others,  that  no  notice  was  given. 
The  evidence  as  to  this  notice  is  given  in  the  opinion. 

Point  Involved:  Whether  and  under  what  circum- 
stances notice  by  telephone  is  sufficient. 

Netll,  J. :  ' '  *  *  *  The  complainant  insists  that 
notice  was  given.  This  is  denied  by  defendant.  The 
treasurer  of  the  company,  Mr.  E.  W.  Connell,  who  made 
the  indorsement  for  the  fertilizer  company,  testifies  un- 
equivocally that  no  notice  was  received  by  him.  Mr. 
Rhea,  the  president,  testifies  to  the  same  effect.  Mr.  Le 
Seur,  the  cashier  of  the  bank,  says  that  he  gave  notice 
by  telephone.  According  to  Sec.  96  of  the  Negotiable  In- 
struments Law,  the  notice  may  be  'in  writing  or  merely 
oral'  and  may  'in  all  cases  be  given  by  delivering  it  per- 
sonally or  through  the  mails.'  We  are  of  opinion  that 
a  notice  by  telephone  would  fall  within  the  meaning  of 
this  section,  if  it  be  clearly  shown  that  the  party  to  be 
notified  was  really  communicated  with;  that  is,  fully 
identified  as  the  party  at  the  receiving  end  of  the  line. 
In  this  case,  however,  Mr.  Le  Seur  is  not  clear  that  he 
ever  held  any  communication  with  Mr.  Connell.  He  tes- 
tifies that  his  talks  were  with  a  clerk,  whose  name  is  not 
given ;  that  he  had  several  conversations  with  this  clerk, 
in  which  he  left  word  for  Mr.  Connell,  and  he  thinks  he 
succeeded  one  time  in  getting  Mr.  Connell.  It  is  evident, 
however,  in  his  testimony,  that  he  is  not  confident  in  this 
belief,  while  Mr.  Connell  is  positive  he  did  not  receive 
notice  at  all.    It  is  said  in  Sec.  97  that  notice  of  dishonor 


752  NEGOTIABLE  PAPER 

may  be  given  'either  to  the  party  himself  or  his  agent  in 
that  behalf.'  We  do  not  undertake  to  define  the  mean- 
ing of  the  expression  'agent  in  that  behalf.'  We  are  of 
opinion,  however,  that  notice  to  a  clerk,  under  the  facts 
stated,  would  not  be  sufficient;  it  not  appearing  that  he 
had  communicated  such  notice  to  any  one  connected  with 
the  management  of  the  business.' ' 

Question  512:  (1.)  Is  notice  of  dishonor  given  by  telephone 
sufficient?    When? 

(2.)  Why  in  this  case  was  the  notice  to  the  clerk  not  regarded 
as  sufficient?  Could  not  notice  to  a  clerk  be  sufficient  under 
certain  circumstances  without  respect  to  whether  he  communi- 
cated the  notice  to  any  one  else  ?    What  circumstances  ? 

Case  No.  513.    First  Nat.  Bk.  v.  Miller,  139  Wis.  126. 

Facts:  Suit  against  defendant  as  indorser  of  a  note. 
Defendant  resided  on  a  rural  free  delivery  route  and 
this  was  known  to  the  holder.  All  mail  with  postage  pre- 
paid deposited  before  9 :25  A.  M.  reached  defendant  the 
same  day.  The  note  was  dishonored  on  Saturday,  Feb- 
ruary 24,  1906.  Notice  thereof,  with  insufficient  postage 
was  put  in  the  mail  the  following  Monday  evening.  This 
mail  was  returned  to  the  sender  for  lack  of  postage.  On 
the  fifth  day  thereafter,  between  6  and  8  P.  M.,  the  notice 
was  again  posted,  properly  addressed  and  stamped.  De- 
fendant refuses  payment  because  he  was  not  properly 
notified  of  dishonor. 

Point  Involved:  The  time  within  which  notice  of  dis- 
honor by  mail  must  be  given. 

Maeshall,  J. :  "*  *  *  The  law  relating  to  proceed- 
ings to  fix  the  liability  of  an  indorser  of  a  promissory 
note,  in  case  of  dishonor  by  the  maker,  was  different 
in  some  states  than  in  others,  and  for  harmony  on  that 
as  to  time  and  manner  of  giving  notice  of  dishonor  to 
the  indorser  it  was  provided  by  Sees.  1678-34  of  the 
Negotiable  Instrument  Statute  that  'Where  the  person 
giving  and  the  person  to  receive  notice  reside  in  differ- 


NOTICE  OF  DISHONOR  753 

ent  places,  the  notice  must  be  given  *  *  *  if  sent 
by  mail'  by  depositing  it  'in  the  postoffice  in  time  to  go 
by  mail  the  day  following  the  day  of  dishonor,  or,  if 
there  be  no  mail  at  convenient  hour  on  that  day,  by  the 
next  mail  thereafter. '  Here  notice  was  not  sent  till  after 
time  for  mail  on  the  first  secular  day  after  dishonor 
though  there  was  ample  opportunity  to  do  so.  The  de- 
parture time  for  the  mail  was  between  9  and  10  o'clock 
of  such  day.  That  was  certainly  a  convenient  time  within 
the  meaning  of  the  statute.  No  excuse  is  found  in  the 
evidence  for  not  depositing  the  notice  with  postage  fully 
paid  so  as  to  have  reached  the  respondent  by  such  mail. 
The  deposit  on  the  evening  of  that  day,  after  ordinary 
business  hours  and  long  after  the  closing  of  the  mail  for 
such  day,  as  regards  the  route  by  which  it  must  have  been 
known  the  notice  would  reach  respondent,  if  at  all,  clearly 
was  too  late.  If  that  were  not  so,  failure  to  prepay  the 
postage  so  notice  would  go  out  by  the  next  mail  and  fail- 
ure to  remedy  the  mistake  after  knowledge  thereof  for 
several  days  thereafter  released  the  indorser  beyond 
any  possible  question. 

"By  the  Court. — Judgment  affirmed." 

Question  513:  Give  the  facts  in  this  ease  showing  why  the 
indorser  was  discharged. 

Case  No.  514.  Oakley  v.  Carr,  66  Nebr.  751, 60  L.  R.  A. 
431. 

Facts:  Suit  by  one  Oakley  as  indorsee  of  a  note 
against  Carr,  as  indorser.  Defense  that  notice  of  dis- 
honor was  not  given  to  Carr  soon  enough  to  fix  his  lia- 
bility. The  facts  were  that  the  note  was  made  by  one 
Anderson,  of  Seward,  Nebraska,  to  Carr,  who  is  a  resi- 
dent of  Lincoln,  Nebraska,  and  indorsed  by  Carr  in  blank 
to  Oakley.  It  was  deposited  for  collection  with  the  First 
National  Bank  of  Lincoln,  which  indorsed  it  "Pay  any 
Bank  or  Banker  on  order,"  (signing  it)  and  sent  it  to 
the  bank  at  Seward.  The  maker  of  the  note  not  being 
found  the  note  was  protested  by  a  notary  public,  and  on 


754  NEGOTIABLE  PAPER 

the  same  day  a  notice  of  protest  was  sent  to  the  maker, 
another  to  First  National  Bank  of  Lincoln,  and  another 
to  John  Carr,  care  of  First  National  Bank  of  Lincoln, 
all  of  these  notices  being  put  in  the  postoffice  on  the  date 
of  maturity.  This  notice  was  forwarded  to  defendant 
Carr  and  reached  him  the  following  day. 

Point  Involved:  Whether  an  indorser  is  notified  in 
due  time  of  dishonor  to  fix  his  liability  to  a  subsequent 
indorser  where  the  holder  has  in  proper  time  notified  the 
last  indorser,  and  such  indorser  has  within  the  time  al- 
lowed for  him  to  receive  notice,  notified  the  indorser 
whom  he  seeks  to  hold. 

Lobingier,  J.:  "*  *  *  At  common  law  by  the 
weight  of  authority,  the  indorser  of  a  dishonored  note  or 
bill,  was  entitled  to  notice  thereof  on  the  day  following 
the  dishonor,  if  he  resided  in  the  same  town  with  the 
maker;  and  if  he  resided  elsewhere  the  notice  was  re- 
quired to  be  posted  by  the  first  reasonable  mail  sent  on 
the  day  following  dishonor.     *     *     * 

1 '  But  the  same  law  merchant  which  required  the  notice 
of  dishonor  to  be  given  or  sent  on  the  day  following  non- 
payment also  limited  the  duty  of  the  holder  or  protesting 
officer  in  this  regard  to  a  notification  of  the  last  indorser, 
who  in  turn  was  allowed  an  additional  day  to  send  notice 
to  the  indorser  immediately  preceding  him,  and  so  on 
until  all  had  been  notified ;  3  Randolph,  Com.  Paper,  Sec. 
1261.  Thus  in  the  case  before  us  the  notary  was  not 
legally  bound  to  notify  Carr  at  all.  It  would  have  been 
sufficient  had  he  simply  sent  the  one  notice  to  the  First 
National  Bank,  which  was  the  last  indorser,  and  the  lat- 
ter would  have  had  until  the  following  business  day  to 
notify  Carr.  As  the  bank  received  its  notice  on  Saturday, 
it  would,  under  this  rule,  have  until  the  following  Monday 
to  send  its  notice  to  defendant  in  error,  for  in  such  cases 
the  intervening  Sunday  is  not  to  be  counted.  Eagle 
Bank  v.  Chapin,  3  Pick.  180 ;  Agnew  v.  Bank  of  Gettys- 
burg, 2  Harr.  &  G.  478 ;  and  many  cases  cited  in  7  Cen 
tury  Dig.  Sec.  1169. 


NOTICE  OF  DISHONOR  755 

"It  is  claimed,  however,  that  this  doctrine  should  not 
be  applied  to  a  case  like  this,  where  the  last  indorser  had 
received  and  indorsed  the  note  simply  for  collection.  It 
will  be  remembered  that  the  indorsements  themselves 
were  not  such  as  to  disclose  that  the  Lincoln  Bank  was 
an  indorsee  for  collection  only.  Carr  had  indorsed  the 
note  in  blank,  and  the  Lincoln  Bank  had  indorsed  it 
merely  so  that  its  correspondent  might  collect,  and  there 
was  nothing  to  indicate  to  the  notary  but  that  the  Lincoln 
Bank  was  the  holder  as  well  as  the  last  indorser.  But 
aside  from  this,  no  authority  is  cited  for  the  exception 
contended  for  by  plaintiff  in  error  in  the  case  of  indors- 
ers  who  hold  for  collection  only.  On  the  other  hand, 
there  is  ample  support  for  the  proposition  that  it  is  suffi- 
cient to  notify  such  indorsers  in  the  same  way  as  other 
last  indorsers  are  notified,  and  that  prior  indorsers  may 
be  held  by  virtue  of  the  usual  notice  from  them.  Carmena 
v.  Bank  of  Louisiana,  1  La.  Ann.  369;  Eagle  Bank  v. 
Hathaway,  5  Met.  212 ;  Brown  v.  Ferguson,  4  Leigh,  39, 
24  Am.  Dec.  707;  Linn  v.  Horton,  17  Wis.  151;  3  Ran- 
dolph,  Com.  Paper,  Sees.  1241,  1262.  Boyer  v.  Richard- 
son, 52  Neb.  156,  71  N.  W.  981,  cited  by  defendant  in 
error,  in  no  way  conflict  with  the  foregoing.  The  Court 
there  was  simply  considering  the  effect  of  an  indorse- 
ment for  collection  on  the  title  to  a  note,  and  held  that 
such  an  indorsee  acquired  no  right  of  action  against  a 
prior  indorser. 

"But  it  is  contended  that  the  'First  National  Bank 
has  never  so  notified  Carr.  *  *  *  They  simply  at- 
tended to  the  courtesy  of  seeing  that  Carr  finally  got  a 
letter  that  was  sent  to  them  in  their  care,  without  even 
knowing  its  contents. ■  If  it  had  developed  that  the  letter 
which  the  bank  delivered  to  Carr  by  its  messenger  was 
not  in  fact  a  notice  of  dishonor,  and  none  other  had  been 
sent,  he,  of  course,  would  have  been  released  from  lia- 
bility. In  taking  the  course  it  did,  the  bank  might  have 
been  assuming  some  risk,  though  it  must  be  remembered 
that  its  agent  claimed  to  have  mailed  a  separate  letter  to 
Carr,  and  testified  that  it  was  their  custom,  out  of  ample 


756  NEGOTIABLE  PAPER 

caution,  to  adopt  in  such  cases  both  methods  of  notifica- 
tion. But  since  the  letter  delivered  to  Carr  was  complete 
and  sufficient  notice  of  dishonor,  we  are  unable  to  see 
how  it  can  profit  defendant  in  error  that  it  was  not  actu- 
ally prepared  by  the  clerks  or  officers  of  the  Lincoln 
Bank.  The  latter  had  a  right  to  employ  such  agencies 
as  it  saw  fit,  both  in  the  preparation,  and  delivery  of  the 
notice. '  * 

Question  514:  C,  the  holder  of  a  note,  presents  it  to  M,  the 
maker,  on  the  date  of  its  maturity  and  M  refuses  payment.  A 
and  B  are  indorsers  thereon  in  the  order  named.  M  notifies  B 
in  the  time  allowed ;  how  long  has  B  to  notify  A  in  order  to  hold 
him? 

Sec.  363.    Waiver  of  Notice,   Not  Required  When, 
Delay  in  Giving  Notice  Excused  When,  Etc. 

Case  No.  515.  Uniform  Negotiable  Instruments  Act, 
Sees.  109-118. 

"[Sec.  109.]  Notice  of  dishonor  may  be  waived, 
either  before  the  time  of  giving  notice  has  arrived,  or 
after  the  omission  to  give  due  notice,  and  the  waiver 
may  be  express  or  implied. 

"[Sec.  110.]  Where  the  waiver  is  embodied  in  the 
instrument  itself,  it  is  binding  upon  all  parties ;  but  where 
it  is  written  above  the  signature  of  an  indorser,  it  binds 
him  only. 

"[Sec.  111.]  A  waiver  of  protest,  whether  in  the  case 
of  a  foreign  bill  of  exchange  or  other  negotiable  instru- 
ment, is  deemed  to  be  a  waiver  not  only  of  a  formal  pro- 
test, but  also  of  a  presentment  and  notice  of  dishonor. 

"[Sec.  112.]  Notice  of  dishonor  is  dispensed  with 
when  after  the  exercise  of  reasonable  diligence,  it  can- 
not be  given  to  or  does  not  reach  the  parties  sought  to 
be  charged. 

"[Sec.  113.]  Delay  in  giving  notice  of  dishonor  is 
excused  when  the  delay  is  caused  by  circumstances  be- 
yond the  control  of  the  holder  and  not  imputable  to  his 


NOTICE  OF  DISHONOR  757 

default,  misconduct  or  negligence.  When  the  cause  of 
delay  ceases  to  operate  notice  must  be  given  with  rea- 
sonable diligence. 

"[Sec.  114.]  Nbtice  of  dishonor  is  not  required  to 
be  given  to  the  drawer  in  either  of  the  following  cases : 

1.  Where  the  drawer  and  drawee  are  the  same  person. 

2.  Where  the  drawee  is  a  fictitious  person  or  a  person 
not  having  capacity  to  contract. 

3.  Where  the  drawer  is  the  person  to  whom  the  instru- 
ment is  presented  for  payment. 

4.  Where  the  drawer  has  no  right  to  expect  or  require 
that  the  drawee  or  acceptor  will  honor  the  instrument. 

5.  Where  the  drawer  has  countermanded  payment. 
"[Sec.  115.]     Notice  of  dishonor  is  not  required  to 

be  given  to  an  indorser  in  either  of  the  following  cases : 

1.  Where  the  drawee  is  a  fictitious  person  or  a  person 
not  having  capacity  to  contract  and  the  indorser  was 
aware  of  the  fact  at  the  time  he  indorsed  the  instrument. 

2.  Where  the  indorser  is  the  person  to  whom  the  in- 
strument is  presented  for  payment. 

3.  Where  the  instrument  was  made  or  accepted  for  his 
accommodation. 

"[Sec.  116.]  Where  due  notice  of  dishonor  by  non- 
acceptance  has  been  given,  notice  of  a  subsequent  dis- 
honor by  non-payment  is  not  necessary,  unless  in  the 
meantime  the  instrument  has  been  accepted. 

"[Sec.  117.]  An  omission  to  give  notice  of  dishonor 
by  non-acceptance  does  not  prejudice  the  rights  of  a 
holder  in  due  course  subsequent  to  the  omission. 

"[Sec.  118.]  Where  any  negotiable  instrument  has 
been  dishonored  it  may  be  protested  for  non-acceptance 
or  non-payment,  as  the  case  may  be,  but  protest  is  not 
required  except  in  the  case  of  foreign  bills  of  exchange." 

Question  515:  May  notice  of  dishonor  be  waived?  May  the 
waiver  be  implied  ?  May  it  be  before  or  after  the  notice  should 
have  been  given? 

(2.)  If  the  waiver  is  embodied  in  the  instrument  does  it 
operate  against  all  indorsers? 


758  NEGOTIABLE  PAPER 

(3.)  If  the  party  "waives  protest,"  of  whfet  else  is  this  a 
waiver  ? 

(4.)     When  is  delay  in  giving  notice  excused? 

(5.)  When  is  notice  of  dishonor  not  required :  (a)  to  be  given 
drawer?    (b)  to  be  given  indorser? 

(6.)  Is  protest  required  in  case  of  promissory  notes  and  inland 
bills?  Upon  what  instrument  is  protest  absolutely  essential? 
May  it  be  given  in  other  cases  ? 

Case  No.  516.  Gove  et  al.  v.  Vining,  7  Mete.  (Mass.) 
212. 

Suit  by  indorsees  against  the  indorser  on  a  promis- 
sory note.  Defense,  that  notice  of  dishonor  was  not 
given.  The  facts  were  that  the  note  was  made  by  Alex- 
ander Vining  to  Polly  Vining  and  indorsed  by  Polly. 
The  present  holder  sent  a  demand  on  the  maturity  of 
the  note,  to  Alexander  as  maker  to  pay  the  note.  The 
messenger  did  not  see  Alexander,  but  handed  the  notice 
to  Polly,  who  read  it,  and  then  requested  that  there  be 
no  suit  on  the  note  until  Alexander  could  go  down  and 
see  the  holder  about  it. 

Point  Involved:  What  amounts  to  an  implied  waiver 
by  an  indorser  of  presentment  for  payment  and  notice 
of  dishonor. 

Shaw,  C.  J. :  "*  *  *  the  Court  are  of  opinion  that 
when  the  indorser,  shortly  before  the  time  when  the  note 
becomes  due,  says  to  the  holder  that  an  arrangement  for 
its  payment  is  about  being  made,  and  in  direct  terms  or 
by  reasonable  implication,  requests  the  holder  to  wait  or 
give  time,  it  amounts  to  an  assurance  that  the  note  will 
be  paid — that  the  promisor  or  indorser  will  pay  it — ■ 
and  is  a  waiver  of  demand  and  notice.  It  tends  to  put 
the  holder  off  his  guard,  and  induces  him  to  forego 
making  a  demand  at  the  proper  time  and  place;  and  it 
would  be  contrary  to  good  faith  to  set  up  such  want  of 
demand  and  notice — caused  perhaps  by  such  forbear- 
ance— as  a  ground  of  defense.     *     *     *  " 

Question  516:     State  this  case. 


PART    XVII 
DISCHARGE  OF  PAPER  AND  PARTIES  THEREON 

CHAPTER    SIXTY-FIVE 
DISCHARGE  OF  NEGOTIABLE  PAPER 

§  364.  How    negotiable    paper    dis-       §  367.  Renunciation  of  rights. 

charged.  §  368.  Discharge  by  cancellation  or 

§  365.  Discharge   of   person   second-  alteration. 

arily  liable. 
§  366.  Not    discharged   by   payment 

by  party  secondarily  liable. 

Sec.  364.    How  Negotiable  Paper  Discharged. 

Case  No.  517.  Uniform  Negotiable  Instruments  Act, 
Sec.  119. 

"A  negotiable  instrument  is  discharged: 

' '  1.  By  payment  in  due  course  by  or  on  behalf  of  the 
principal  debtor. 

"2.  By  payment  in  due  course  by  the  party  accommo- 
dated, where  the  instrument  is  made  or  accepted  for 
accommodation. 

"3.  By  the  intentional  cancellation  thereof  by  the 
holder. 

"4.  By  any  other  act  which  will  discharge  a  simple 
contract  for  the  payment  of  money. 

"5.  When  the  principal  debtor  becomes  the  holder  of 
the  instrument  at  or  after  maturity  in  his  own  right. ' ' 

Question  517:  Enumerate  the  various  ways  in  which  a  nego- 
tiable instrument  may  be  discharged. 

759 


760  NEGOTIABLE  PAPER 

Sec.  365.    Discharge  of  Persons  Secondarily  Liable. 

Case  No.  518.  Uniform  Negotiable  Instruments  Act, 
Sec.  120. 

"A  person  secondarily  liable  on  the  instrument  is 
discharged : 

"1.  By  an  act  which  discharges  the  instrument. 

"2.  By  the  intentional  cancellation  of  his  signature  by 
the  holder. 

"3.  By  the  discharge  of  a  prior  party. 

"4.  By  a  valid  tender  of  payment  made  by  a  prior 
party. 

"5.  By  a  release  of  the  principal  debtor,  unless  the 
holder's  right  of  recourse  against  the  party  secondarily 
liable  is  expressly  reserved,  or  unless  the  principal  debtor 
be  an  accommodating  party. 

' '  6.  By  any  agreement  binding  upon  the  holder  to  ex- 
tend the  time  of  payment,  or  to  postpone  the  holder's 
right  to  enforce  the  instrument,  unless  made  with  the 
assent  of  the  party  secondarily  liable,  or  unless  the  right 
of  recourse  against  such  party  is  expressly  reserved." 

Question  518:  Enumerate  the  various  ways  in  which  a  person 
secondarily  liable  is  discharged. 

Sec.  366.    Not  Discharged  by  Payment  by  Party 
Secondarily  Liable. 

Case  No.  519.  Uniform  Negotiable  Instruments  Act, 
Sec.  121. 

"Where  the  instrument  is  paid  by  a  party  secondarily 
liable  thereon,  it  is  not  discharged ;  but  the  party  so  pay- 
ing it  is  remitted  to  his  former  rights  as  regards  all 
prior  parties,  and  he  may  strike  out  his  own  and  all  sub- 
sequent indorsements,  and  again  negotiate  the  instru- 
ment, except : 

"1.  Where  it  is  payable  to  the  order  of  a  third  per- 
son and  has  been  paid  by  the  drawer ;  and, 

1 '  2.  Where  it  was  made  or  accepted  for  accommodation, 
and  has  been  paid  by  the  party  accommodated." 

Question  519:    State  the  provisions  of  this  section. 


DISCHARGE  761 

Sec.  367.    Renunciation  of  Rights. 

Case  No.  520.  Uniform  Negotiable  Instruments  Act, 
Sec.  122. 

1 '  The  holder  may  expressly  renounce  his  right  against 
any  party  to  the  instrument  before,  at,  or  after  its  ma- 
turity. An  absolute  and  unconditional  renunciation  of 
his  rights  against  the  principal  debtor  made  at  or  after 
the  maturity  of  the  instrument,  discharges  the  instru- 
ment. But  a  renunciation  does  not  affect  the  rights  of 
a  holder  in  due  course  without  notice.  A  renunciation 
must  be  in  writing,  unless  the  instrument  is  delivered  up 
to  the  person  primarily  liable  thereon." 

Question  520:    To  constitute  a  renunciation  of  rights,  what  is 

necessary  ? 

Case  No.  521.    In  re  George  (1890),  4  Ch.  D.  627. 

Facts:  M.  A.  Francis  gave  her  note  for  £2,000  to  F. 
W.  George,  now  deceased.  Some  hours  before  his  death 
George  directed  the  promissory  note  to  be  brought  to 
him  that  he  might  destroy  it.  The  note  could  not  be 
found.  George  then  sent  for  the  nurse  and  told  her  he 
could  not  find  the  note,  but  that  he  wished  to  forgive  the 
debt,  and  made  the  nurse  promise  she  would  destroy  the 
note,  and  that  she  would  testify  that  it  was  George's 
wish  that  it  should  be  destroyed,  and  that  she  should 
write  this  down.  Thereupon  the  nurse  wrote  this  memo- 
randum: "30th  August,  1889.  It  is  by  Mr.  George's 
dying  wish  that  the  cheque  for  £2,000  money  lent  to  Mrs. 
Francis  be  destroyed  as  soon  as  found.  Mr.  George  is 
perfectly  conscious  and  in  his  sound  mind.  (Signed) 
Nurse  T."  After  George's  death  the  note  was  found  by 
the  executors,  and  this  is  a  proceeding  to  determine 
whether  it  has  been  cancelled. 

Point  Involved:  What  amounts  to  a  legal  renunciation 
of  rights  upon  a  negotiable  instrument. 


762  NEGOTIABLE  PAPER 

Chitty,  J.:  "*  *  *  Then  comes  the  question, 
whether  there  is  a  'renunciation'  'in  writing'  within  Sec. 
62,  Sub-Sec.  1.  I  entertain  no  doubt  of  the  integrity  and 
trustworthiness  of  the  witnesses,  and  I  entertain  no  doubt 
also  that  it  was  the  testator's  intention  to  forgive,  or  dis- 
charge this  note  in  favour  of  the  plaintiff.  I  am  quite 
satisfied  with  the  evidence  on  this  point.  Sec.  62,  Sub- 
Sec.  1,  says  the  renunciation  must  be  in  writing,  unless 
the  bill  is  delivered  up  to  the  'acceptor,'  and,  changing 
the  language  to  suit  the  present  case,  that  would  be,  un- 
less the  note  is  delivered  up  to  the  maker.  The  statute 
contains  provisions  for  the  cancellations  of  bills  of  ex- 
change, and,  therefore,  of  promissory  notes  also.  So  that 
it  is  quite  clear,  that  if  this  note  had  been  in  the  testator's 
possession  at  the  time,  he  would  have  had  it  destroyed : 
upon  that  point  I  entertain  no  doubt.  I  have,  however, 
to  deal  with  the  statute,  which  is  not  confined,  of  course, 
to  cases  such  as  this,  but  is  a  statute  as  to  bills  of  ex- 
change, and  has  a  wide  operation  among  mercantile  men ; 
and  I  feel  that  I  must  be  on  my  guard  not  to  allow  any 
sympathy  I  may  have  with  the  plaintiff  on  the  facts  of 
the  case  in  any  way  to  influence  my  judgment  in  con- 
struing this  section;  because  I  might,  if  I  did  give  way 
on  such  a  ground  as  that,  be  inflicting  considerable  in- 
jury upon  merchants  and  others. 

"Now,  it  is  plain  that  what  must  be  in  writing  is  an 
absolute  and  unconditional  renunciation  of  rights.  It  is 
not  necessary  to  put  those  wards  in;  but  that  must  be 
the  effect  of  the  document.  Then  the  document  is  not  to 
be  a  note  or  memorandum  of  the  renunciation  or  of  an 
intention  to  do  it,  but  it  must  be  itself  the  record  of  the 
renunciation.  I  am  not  called  upon  to  say  whether  the 
words,  'the  renunciation  must  be  in  writing,'  involves  the 
signature;  and  I  do  not  propose  to  say  anything  which 
would  tend  to  shew  it  was  my  opinion  that  the  renuncia- 
tion in  writing  need  not  be  signed.  I  see  great  danger  in 
holding  that  the  signature  is  not  required.  I  leave  the 
point  wholly  undertermined.  This  section,  as  has  been 
properly  pointed  out,  does  not,  in  terms,  say  that  the 


DISCHARGE  763 

writing  must  be  signed  by  the  holder  of  the  bill  or  note ; 
and  it  does  not,  in  terms,  say  that  the  writing  may  be 
signed  by  anybody  on  his  behalf — that  is,  by  an  agent; 
and,  no  doubt,  there  are  other  sections  where  signature 
is  spoken  of,  and  it  must  be  the  signature  of  the  person 
himself,  or  there  may  be  cases  where  it  is  signed  by  the 
agent,  and  provisions  are  made  to  that  effect  in  the 
statute. 

"But  now  I  take  the  document  which  I  have  before 
me,  and  compare  it  with  the  statute.  The  facts  are 
these.  [His  Lordship  then  stated  the  facts  as  to  the 
writing  of  the  memorandum  by  the  nurse,  and  con- 
tinued] :  That  memorandum  was,  no  doubt,  meant  to  be 
evidence  of  his  intention.  The  document  is  signed  by 
the  nurse,  and  it  was  an  authority  to  those  concerned,  if 
the  note  had  been  found,  to  destroy  it  in  his  lifetime. 

"But  is  that  an  absolute  and  unconditional  renuncia- 
tion in  writing  of  the  testator's  rights  on  the  note?  Mr. 
Romer's  argument  (to  put  it  shortly)  was  this,  that  it 
is  final  because  it  is  stated  it  is  Mr.  George's  dying  wish, 
and  that  it  is  immediate  because  the  note  was  to  be  de- 
stroyed as  soon  as  found.  But  the  real  question,  I  think, 
is  this:  is  the  direction  to  destroy  the  note  as  soon  as 
found  an  absolute  and  unconditional  renunciation  of  the 
rights  on  the  note?  I  put  the  proposition  in  that  way; 
for  I  think  it  is  the  fairest  way  to  state  it  in  favour  of 
the  plaintiff.  I  am  now  assuming  that  this  is  a  writing 
by  the  testator — an  assumption  that  I  am  making  in 
favour  of  the  plaintiff. 

"The  pertinent  question  is,  could  not  the  testator,  after 
this  paper  had  been  signed  by  the  nurse,  have  gone  to 
the  bank,  if  he  recovered,  where  he  supposed  the  note  to 
be,  to  get  it,  or  if  it  was  found  afterwards  and  brought 
to  the  testator,  could  he  not  say,  'I  have  changed  my 
mind'?  I  think  he  could.  I  think  I  am  bound  in  point 
of  law  to  say  that  he  could. 

"Having  examined  the  case  with  all  the  care  that  I 
think  could  be  given  to  it,  I  am  unable  to  come  to  the 
conclusion  that  this  was  an  absolute  and  unconditional 


764  NEGOTIABLE  PAPER 

renunciation   in   writing   such   as   is    required    by   the 
statute. ' ' 

Question  521 :  Why  was  not  the  writing  by  the  nurse  in  this 
case  considered  a  renunciation? 

Sec.  368.    Discharge  by  Cancellation  or  Alteration. 
(See  also  Case  No.  485,  supra.) 

Case  No.  522.  Uniform  Negotiable  Instruments  Act, 
Sees.  123, 124, 125. 

"  [Sec.  123.]  A  cancellation  made  unintentionally,  or 
under  a  mistake,  or  without  the  authority  of  the  holder, 
is  inoperative ;  but  where  an  instrument  or  any  signature 
thereon  appears  to  have  been  cancelled,  the  "burden  of 
proof  lies  on  the  party  who  alleges  that  the  cancellation 
was  made  unintentionally,  or  under  a  mistake  or  without 
authority. 

"[Sec.  124.]  Where  a  negotiable  instrument  is  ma- 
terially altered  by  the  holder  without  the  assent  of  all 
parties  liable  thereon,  it  is  avoided  except  as  against  a 
party  who  has  himself  made,  authorized  or  assented  to 
the  alteration  and  subsequent  indorsers. 

"But  when  an  instrument  has  been  materially  altered 
and  is  in  the  hands  of  a  holder  in  due  course,  not  a  party 
to  the  alteration,  he  may  enforce  payment  thereof  ac- 
cording to  its  original  tenor. 

"[Sec.  125.]     Any  alteration  which  changes: 

"1.  The  date. 

"2.  The  sum  payable,  either  for  principal  or  interest. 

"3.  The  time  or  place  of  payment. 

"4.  The  number  and  the  relations  of  the  parties. 

"5.  The  medium  of  currency  in  which  payment  is  to 
be  made. 

"Or  which  adds  a  place  of  payment  where  no  place  of 
payment  is  specified,  or  any  other  change  or  addition 
which  alters  the  effect  of  the  instrument  in  any  respect, 
is  a  material  alteration." 


DISCHARGE  765 

Question  522:  (1.)  If  a  cancellation  is  made  unintention- 
ally, what  is  the  effect  f 

(2.)     What  presumption  is  made  as  to  such  cancellation  ? 

(3.)  When  an  instrument  is  materially  altered  what  result 
follows: 

(4.)  Can  suit  be  brought  on  it  in  its  original  form :  (a)  by  the 
party  altering  it;  (b)  by  a  holder  in  due  course? 

(5. )     What  alterations  are  considered  material  ? 

Case  No.  523.  Moskowitz  v.  Deutsch  et  al.,  92  N.  Y. 
Supp.  921. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  The  effect  of  alteration  on  the  rights 
of  an  innocent  holder. 

0  'Gorman,  J. :  ' '  The  defendants  make  a  check  to  one 
Goldberg  under  date  of  September  2d.  On  the  following 
day  the  payee  represented  to  the  defendants  that  he  had 
lost  this  check,  whereupon  payment  thereof  was  stopped 
at  the  bank,  and  five  or  six  days  later  he  received  from 
the  defendants  another  check  for  the  same  amount,  which 
was  duly  cashed.  A  day  or  two  after  September  12th, 
the  original  check  of  September  2d  with  a  '1'  inserted 
before  the  '2,'  making  the  date  September  '12/  was  in- 
dorsed over  to  the  plaintiff  by  Goldberg,  and  cashed. 
The  plaintiff  now  sues  the  drawers,  and  the  defense  is 
a  general  denial  and  forgery.  That  the  date  of  this  check 
had  been  altered  by  Goldberg,  or  at  his  instance,  is  too 
clear  for  dispute.  Such  an  alteration  is  material,  con- 
stitutes forgery,  and  destroys  the  validity  of  the  check, 
except  as  provided  by  Sec.  205  of  the  Negotiable  Instru- 
ments Law  (Laws  1897,  p.  745,  c.  612),  which  declares 
that,  'when  an  instrument  has  been  materially  altered  and 
is  in  the  hands  of  a  holder  in  due  course,  not  a  party  to 
the  alteration,  he  may  enforce  payment  thereof  accord- 
ing to  its  original  tenor.'  If  it  be  assumed,  therefore, 
as  the  Court  below  has  found,  that  the  plaintiff  is  an 
innocent  holder  for  value  in  due  course,  he  may  assert 
such  rights  as  are  conferred  by  the  check  as  it  was  be- 
fore the  alteration.    We  then  have  a  case  where  a  check 


766  NEGOTIABLE  PAPER 

dated  September  2d  is  cashed  by  the  plaintiff  and  pre- 
sented for  payment  more  than  10  days  thereafter.  As 
all  the  parties  resided,  and  the  bank  was  situated,  in  the 
city  of  New  York,  the  delay  in  the  presentment  of  the 
check  was  unreasonable,  and  was  sufficient  to  discharge 
the  defendants  as  drawers  from  liability  thereon  to  the 
extent  of  the  loss,  if  any,  incurred  by  them  in  consequence 
of  the  delay.  But  the  only  way  in  which  a  drawer  of  a 
check  can  be  exposed  to  injury  by  such  delay  is  where 
the  bank  becomes  insolvent  subsequent  to  the  delivery 
of  the  check  and  prior  to  its  presentment.  (Eaton  &  Gil- 
bert on  Commercial  Paper,  630,  and  cases  cited ;  Andrus 
v.  Bradley  [C.  C]  102  Fed.  54,  affirmed  107  Fed.  196,  46 
C.  C.  A.  238,  53  L.  R.  A.  432).  The  loss  suffered  by  the 
defendants  must  be  attributed  not  to  delay  in  the  present- 
ment of  the  check,  but  to  their  imprudent  reliance  on  the 
false  and  fraudulent  representations  of  the  payee.  Be- 
fore giving  the  new  check,  the  defendants  might  have  in- 
sisted upon  full  indemnity  from  Goldberg,  and  thus  es- 
caped the  loss  of  which  they  now  complain.  By  their 
conduct,  Goldberg  found  it  possible  to  perpetrate  a 
fraud,  and  the  consequences  of  their  misplaced  confi- 
dence in  him  should  be  borne  by  them,  and  not  visited 
upon  the  plaintiff,  an  innocent  party  to  the  transaction. 
Upon  the  facts,  the  plaintiff  was  entitled  to  judgment. — 
Judgment  affirmed  with  costs." 

Question  523:    What  was  the  alteration  in  this  case?    Why 
was  the  plaintiff  allowed  to  recover? 


...,.- 


PART    XVIII 

BILLS  OF  EXCHANGE  PARTICULARLY 
CONSIDERED 

Chapter  Sixty-six.  Definitions   and  General  Provi- 

sions. 

Chapter  Sixty-seven.     Acceptance. 

Chapter  Sixty-eight.      Presentment  for  Acceptance. 

Chapter  Sixty-nine.       Protest. 

Chapter  Seventy.  Acceptance  and  Payment  for 

Honor. 

Chapter  Seventy-one.    Bills  in  a  Set. 


CHAPTER    SIXTY-SIX 
DEFINITIONS  AND  GENERAL  PROVISIONS 

§  369.  Bills  of  exchange  defined.  §  373.  When  hill  may  he  treated  as 
§  370.  Bill  not  an  assignment.  note. 

§  371.  Joint  drawees.  §  374.  Referee  in  case  of  need. 
§  372.  Bills  inland  and  foreign. 

Sec.  369.    Bills  of  Exchange  Defined. 

Case  No.  524.     Columbia  Bank  Co.  v.  Bowen. 

(Set  out  as  Case  No.  498,  supra.) 

Question  524:    Define  "  bill  of  exchange. " 

767 


768  NEGOTIABLE  PAPER 

Sec.  370.    Bill  Not  an  Assignment. 

(See  also  Ballen  &  Friedman  v.  Bank,  post,  Case  No. 
530.) 

Case  No.  525.  B.  &  O.  R.  Co.  v.  First  Nat.  Bk.,  102 
Va.  753. 

Keith,  P.  (quoting  from  the  Negotiable  Instruments 
Act) :  "  'A  bill  of  itself  does  not  operate  as  an  assign- 
ment of  funds  in  the  hands  of  the  drawee  available  for 
the  payment  thereof,  and  the  drawee  is  not  liable  on  the 
bill  unless  and  until  he  accepts  the  same.'  *  *  * 
The  acceptance  of  a  bill  is  the  signification  by  the  drawee 
of  his  assent  to  the  order  of  the  drawer.  The  acceptance 
must  be  in  writing  and  signed  by  the  drawee.  It  must 
not  express  that  the  drawee  will  perform  his  promise 
by  any  other  means  than  the  payment  of  money. ' ' 

Question  525 :  A  draws  on  B  to  the  order  of  C.  B  has  funds 
to  A's  credit  and  an  agreement  with  A  that  he  will  accept  A's 
drafts,  but  he  refuses  to  accept  or  pay  the  draft  to  C  's  order.  Has 
C  any  rights  against  B  ?  What  are  his  rights  on  the  unaccepted 
bill? 

Sec.  371.    Joint  Drawees. 

Case  No.  526.  Uniform  Negotiable  Instruments  Act, 
Sec.  128. 

"A  bill  may  be  addressed  to  two  or  more  drawees 
jointly,  whether  they  are  partners  or  not;  but  not  to 
two  or  more  drawees  in  the  alternative  or  in  succession. ' ' 

Question  526:     State  the  provisions  of  this  section. 

Sec.  372.    Bills  Inland  and  Foreign. 

Case  No.  527.  Uniform  Negotiable  Instruments  Act, 
Sees.  126,  129. 


BILLS  OF  EXCHANGE  769 

' '  An  inland  bill  of  exchange  is  a  bill  which  is,  or  on  its 
face  purports  to  be,  both  drawn  and  payable  within  this 
state.    Any  other  bill  is  a  foreign  bill." 

Question  527 :    Define  a  foreign  and  an  inland  bill  of  exchange. 

Sec.  373.    When  Bill  May  Be  Treated  as  Note. 

Case  No.  528.  Uniform  Negotiable  Instruments  Act, 
Sec.  130. 

1  'Where  in  a  bill,  drawer  and  drawee  are  the  same 
person,  or  where  the  drawee  is  a  fictitious  person,  or  a 
person  not  having  capacity  to  contract,  the  holder  may 
treat  the  instrument  at  his  option,  either  as  a  bill  of  ex- 
change or  promissory  note." 

Question  528:    State  the  rule  of  this  section. 

Sec.  374.    Referee  in  Case  of  Need. 

Case  No.  529.  Uniform  Negotiable  Instruments  Act, 
Sec.  132. 

"The  drawer  of  a  bill  and  any  indorser  may  insert 
thereon  the  name  of  a  person  to  whom  the  holder  may 
resort  in  case  of  need,  that  is  to  say,  in  case  the  bill  is 
dishonored  by  non-acceptance  or  non-payment.  Such 
person  is  called  the  referee  in  case  of  heed.  It  is  in  the 
option  of  the  holder  to  resort  to  the  referee  in  case  of 
need  or  not,  as  he  may  see  fit. ' ' 

Question  529:  Who  is  a  referee  in  case  of  need?  For  what 
purpose  is  he  named  ? 


CHAPTER    SIXTY-SEVEN 
ACCEPTANCE 

§  375.  Acceptance  defined.     .  §  379.  At  what   stage   bill   may   be 

§  376.  To  be  written  on  face  of  bill.  accepted. 

§  377.  Where  not  written  on  bill.  §  380.  General   or    qualified   accept- 

§  378.  Drawee  has  24  hours  for  de-  ance. 

cision.      Retention    as    ac- 
ceptance. 

Sec.  375.    Acceptance  Defined. 

Case  No.  530.  Ballen  &  Friedman  v.  Bank  of  Krenlin, 
130  Pac.  Eep.  539  (Okla.). 

Facts:  Suit  by  Mike  Ballen  &  Dave  Friedman,  a  part- 
nership, against  Bank  of  Krenlin.  Plaintiff's  case  was 
that  certain  checks  had  been  offered  them  as  cash  items 
and  they  had  inquired  of  the  defendant  as  the  bank  on 
which  said  checks  were  drawn,  whether  said  checks  were 
good,  that  the  bank  had  responded  that  they  were  and 
that  plaintiffs  had  therefore  accepted  them.  On  demurrer 
to  petition. 

Point  Involved:  Whether  an  oral  statement  by  the 
drawee  of  a  check  that  the  same  is  good,  in  response  to 
an  inquiry  by  one  in  whose  favor  such  checks  are  drawn 
and  who  relies  on  the  information  before  receiving  them, 
gives  the  holder  any  right  against  the  bank  on  the  check. 
Generally,  what  constitutes  an  acceptance? 

Rosser,  C. : 

"This  transaction  occurred  after  the  act  of  March  20, 
1909  (Laws  1909,  c.  24),  commonly  called  the  Negotiable 

770 


ACCEPTANCE  7W 

Instruments  Law,  had  become  the  law  in  this  state.  Sec- 
tion 185  of  that  act  is  as  follows:  'A  check  is  a  bill  of 
exchange  drawn  on  a  bank  on  demand.  Except  as  herein 
otherwise  provided,  the  provisions  of  this  act  applicable 
to  a  bill  of  exchange  payable  on  demand  apply  to  a  check. ' 
Section  132  of  the  act  is  as  follows :  '  The  acceptance  of 
a  bill  is  the  signification  by  the  drawee  of  his  assent  to 
the  order  of  the  drawer.  The  acceptance  must  be  in  writ- 
ing and  signed  by  the  drawee.  It  must  not  express  that 
the  drawee  will  perform  his  promise  by  any  other  means 
than  the  payment  of  money.' 

"It  is  contended  by  the  plaintiffs  that,  as  they  were  in- 
formed, by  the  defendant's  cashier,  that  the  check  was 
good  and  acted  upon  that  information,  the  bank  is 
estopped  to  deny  liability,  and  is  responsible  for  the 
amount  of  the  checks.  As  a  general  proposition  of  law, 
as  applied  to  ordinary  transactions,  the  plaintiff  is  un- 
doubtedly correct;  but  the  question  here  is  whether  the 
ordinary  principles  of  law  in  this  regard  apply  to  nego- 
tiable instruments,  including  bank  checks.  It  is  believed 
that  they  do  not  apply,  at  least  in  the  absence  of  actual 
fraud,  which  is  not  alleged  in  this  case.  The  Negotiable 
Instruments  Law  was  intended  to  fix  and  settle  the  rights 
of  the  parties,  so  far  as  they  are  affected  by  its  operation. 
Columbian  Banking  Company  v.  Bowen,  134  Wis.  218, 
114  N.  W.  451.  Section  132  of  that  law,  quoted  above, 
provides  that  the  acceptance  of  a  bill  of  exchange  must 
be  in  writing.  Section  185,  quoted  above,  provides  that 
checks  shall  be  governed  by  the  same  rules  as  bills  of  ex- 
change. Section  189  provides  that  a  check  of  itself  does 
not  operate  as  an  assignment  of  any  part  of  the  funds 
to  the  credit  of  the  drawee  with  the  bank,  and  that  the 
bank  is  not  liable,  unless  and  until  it  accepts  or  certifies 
the  check.  The  oral  statement  that  the  checks  were  good 
was  not  a  lawful  acceptance,  as  required  by  the  statute. 
Neither  was  it  a  certification,  because  a  certificate  means 
a  declaration  in  writing,  and  a  certificate  must  be  in  writ- 
ing.    *     *     * 

"The  equitable  grounds  under  which  plaintiffs  seem 


772  NEGOTIABLE  PAPER 

to  be  strong;  but  a  consideration  of  all  the  facts  show 
that,  even  on  equitable  grounds,  the  bank  is  entitled  to 
consideration.  Suppose  that,  when  asked  about  the 
checks,  the  drawer  had  to  his  credit  in  the  bank  an  amount 
sufficient  to  pay  them.  The  bank  would  naturally  answer 
that  the  checks  were  good.  They  were  good  as  the  ac- 
count then  stood ;  and  if  other  checks,  sufficient  to  reduce 
the  balance  below  the  face  of  those  in  controversy,  had 
not  come  in  before  they  were  presented,  they  would  have 
been  paid.  If  no  other  checks  had  been  issued,  the  bank 
would  have  done  the  drawer  a  grave  injustice  if  it  had 
answered  that  the  checks  were  not  good.  Then,  after 
giving  out  the  information,  suppose  other  checks  had 
been  presented.  Under  section  189  of  the  Negotiable  In- 
struments Law,  the  giving  of  the  checks  in  suit  did  not 
operate  as  an  assignment  of  any  part  of  the  drawer's 
fund.  The  bank  could  not  refuse  to  pay  other  checks  that 
were  presented.  The  checks  sued  on  had  not  been  certi- 
fied. The  bank  would  have  been  liable  to  any  person  pre- 
senting a  check,  unless  they  paid  it.  It  is  clear  that  to 
require  the  bank  to  pay  these  checks  would  be  to  make  it 
responsible  for  having  told  the  checks  were  good,  without 
any  fraudulent  intention,  and  -at  a  time  when  its  books 
showed  they  were  good.  The  inquiry  was  made  concern- 
ing the  checks  as  such ;  and  there  is  nothing  in  the  peti- 
tion to  indicate  that  either  the  plaintiffs  or  the  bank  had 
in  mind  anything  except  the  status  of  the  drawer's  ac- 
count, and  certainly  no  contract,  equitable  or  otherwise, 
except  as  contained  in  the  checks  was  contemplated  by 
the  parties. 

Question  530:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision. 

(2.)  Suppose  when  the  inquiry  had  been  made  the  bank  had 
no  funds  of  the  drawer  on  deposit  and  knew  the  checks  were  not 
good  and  made  the  statement  fraudulently,  would  the  holder 
taking  the  bills  on  the  faith  of  such  statement  have  a  case  ?  (See 
Van  Buskirk  v.  State  Bank  of  Rocky  Ford,  35  Colo.  142,  83  Pac. 
778.) 


ACCEPTANCE  773 

Sec.  376.    Acceptance  to  Be  Written  on  Bill. 

Case  No.  531.  Uniform  Negotiable  Instruments  Act, 
Sec.  133. 

"The  holder  of  a  bill  presenting  the  same  for  accept- 
ance may  require  that  the  acceptance  be  written  on  the 
bill,  and,  if  such  request  is  refused,  may  treat  the  bill  as 
dishonored." 

Question  531:  In  what  form  is  the  holder  entitled  to  have 
acceptance  made?  If  such  form  of  acceptance  is  refused,  what 
right  has  the  holder  ?    Who  could  he  then  sue  ? 

Sec.  377.    Where  Acceptance  Not  Written  on  Bill. 

Case  No.  532.  Uniform  Negotiable  Instruments  Act, 
Sees.  134, 135. 

"Where  an  acceptance  is  written  other  than  upon  the 
bill  itself,  it  does  not  bind  the  acceptor  except  in  favor  of 
a  person  to  whom  it  has  been  shown  and  who  on  the  faith 
thereof  receives  the  bill  for  value. 

"An  unconditional  promise  in  writing  to  accept  a  bill 
before  it  is  drawn  is  deemed  an  actual  acceptance  in  fa- 
vor of  every  person  who,  upon  the  faith  thereof,  receives 
the  bill  for  value." 

Question  532:    State  the  provisions  of  these  paragraphs. 

Sec.  378.    Drawee  Has  24  Hours  for  Decision — Retention 
as  Acceptance. 

Case  No.  533.  Wisner  v.  First  Nat.  Bank  of  Gallitzin, 
220  Pa.  21, 17  L.  R.  A.  (N.  S.)  1266. 

Facts:  Sam'l  R.  Bullock  drew  six  checks  on  the  de- 
fendant bank  in  favor  of  Charles  W.  Gallaer,  Jr.,  who 
deposited  them  in  the  plaintiff  bank  in  New  York  City 
which  credited  them  to  Gallaer 's  account.  The  first  check 
was  dated  December  27,  1904,  and  the  last  January  3, 


774  NEGOTIABLE  PAPER 

1905.  The  plaintiff  bank  sent  these  checks  to  the  de- 
fendant bank.  On  the  day  they  were  received,  the  defend- 
ant bank  (on  which  said  checks  were  drawn)  handed  the 
several  checks  to  a  notary  public  usually  employed  by  it, 
for  the  purpose  of  protest,  and  he  held  them  without  pro- 
testing them  or  giving  notice  of  dishonor.  Several  days 
later,  the  checks  were  returned  to  the  banks  through 
whom  they  were  sent  to  the  defendant  bank  for  collection. 
The  plaintiff  bank  brings  suit  against  the  defendant  bank 
to  recover  the  amount  of  the  checks  on  the  ground  that 
the  drawee  bank,  the  defendant,  had  accepted  the  checks 
by  its  refusal  and  failure  to  return  them  within  24  hours 
after  their  receipt  as  required  by  the  Negotiable  Instru- 
ments Law.  The  defendant  claims  that  it  is  relieved 
from  liability  on  the  checks  because  it  had  refused  to  ac- 
cept them  and  had  on  the  day  of  their  receipt  delivered 
them  to  a  notary  public  for  protest  and  dishonor. 

Point  Involved:  Whether  the  drawee  of  a  check  (or 
bill)  to  whom  such  check  (or  bill)  is  sent  for  acceptance, 
is  to  be  deemed  an  acceptor  upon  his  refusal  to  return 
the  check  (or  bill)  within  24  hours  of  receiving  it. 

Mestrezat,  J.:  "We  come  now  to  the  principal  and 
controlling  question  in  the  case,  and  that  is  whether  the 
failure  to  return  the  checks  to  the  holder  or  the  collect- 
ing bank  within  twenty-four  hours  after  their  delivery  to 
the  defendant  was  a  refusal  to  return  the  checks  within 
the  meaning  of  sec.  137  of  the  act;  or  did  the  act  con- 
template a  tortious  refusal  to  return,  amounting  to  a  con- 
version of  the  checks,  as  claimed  by  the  defendant  and  as 
held  by  the  Court  below?  The  drawee  to  whom  a  bill  is 
delivered  for  acceptance  is  deemed  or  taken  to  have  ac- 
cepted it  under  this  section  of  the  act  (a)  where  he  de- 
stroys it ;  (b)  where  he  refuses  within  twenty-four  hours 
after  delivery  to  return  the  bill,  accepted  or  nonaccepted, 
to  the  holder;  and  (c)  where  he  refuses,  within  such 
other  period  as  the  holder  may  allow,  to  return  the  bill, 
accepted  or  nonaccepted,  to  the  holder.  When  either  of 
these  conditions  exists,  the  drawee  becomes  an  acceptor 


ACCEPTANCE  775 

of  the  bill,  and  assumes  liability  as  such.  An  implied 
or  a  verbal  acceptance  of  a  bill  is  abolished  by  the  act, 
and  there  are  now  only  two  modes  of  accepting  a  bill: 
(1)  By  writing,  signed  by  the  drawee,  as  provided  in  sec. 
132 ;  and  (2)  by  a  nonreturn  of  the  bill,  which  is  declared 
by  the  section  under  consideration  to  be  the  equivalent 
of  an  acceptance.  The  manifest  purpose  in  requiring  the 
prompt  return  of  the  bill  is  in  the  interest  of  and  for  the 
protection  of  the  holder.  It  is  immaterial  to  the  drawer 
when  the  bill  is  returned,  as  he  is  protected  by  notice  of 
dishonor;  and  hence  this  section  of  the  act  requiring 
prompt  action  in  returning  the  bill  was  obviously  en- 
acted for  the  benefit  of  the  holder  of  the  bill.  The  act 
declares  in  sec.  136  that  twenty-four  hours  is  sufficient 
time  for  the  drawee  to  decide  whether  or  not  he  will 
accept  the  bill,  and,  the  section  under  consideration  hav- 
ing allowed  this  time,  it  requires  him  to  return  the  bill 
accepted  or  nonaccepted.  If  a  demand  and  refusal  are 
conditions  precedent  to  an  acceptance  under  this  section, 
then  the  holder  must  not  only  present  the  bill  for  accept- 
ance, but  he  must  make  a  demand  for  its  acceptance,  and 
await  a  specific  refusal  before  the  drawee  is  deemed  an 
acceptor.  This  would  certainly  not  be  to  the  convenience 
or  the  interest  of  the  holder,  but  in  direct  opposition  to 
both.  It  would  afford  the  holder  less  protection,  and 
would  in  effect  prevent  the  return  of  the  bill  within 
twenty-four  hours;  or  it  would  require  the  holder,  in 
transmitting  the  bill  with  instructions  to  present  it  for 
acceptance,  to  send  at  the  same  time  a  demand  for  its 
acceptance.  It  is  obvious  that  such  demand  accompany- 
ing a  presentation  of  a  bill  for  acceptance  is  wholly  un- 
necessary, and  certainly  was  not  in  contemplation  of  the 
legislature  in  enacting  the  section.  The  presentation  of  a 
bill  for  acceptance  is  a  demand  for  its  acceptance,  which, 
if  the  bill  is  retained  by  the  drawee,  implies  a  demand 
for  its  return  if  acceptance  is  declined,  in  contemplation 
of  the  negotiable  instruments  law.  The  purpose  of  pre- 
senting a  bill  of  exchange  to  the  drawee  is  to  require  him 
to  accept  and  assume  liability  for  its  payment,  or  to  re- 


776  NEGOTIABLE  PAPER 

fuse  its  acceptance,  and  thereby  avoid  liability.  When 
the  bill  is  presented,  action  by  the  drawee  is  therefore 
demanded  of  him,  and  he  cannot  remain  silent  and  in- 
active without  incurring  the  statutory  penalty  prescribed 
for  such  conduct.  If  he  is  permitted  to  retain  the  bill, 
he  must  return  it  accepted  or  not  accepted  at  the  expira- 
tion of  twenty-four  hours.  If  he  accepts,  he  is  required 
to  do  so  in  writing,  and  must  return  the  bill.  If  he  re- 
fuses, he  must  return  the  bill  not  accepted.  If  he  fails  to 
do  either — return  it  accepted  or  not  accepted — he  is 
'deemed  to  have  accepted  the  bill'  under  this  section  of 
the  act,  and  is  liable  thereon  to  the  holder.  It  is  apparent, 
we  think,  that  in  the  enactment  of  this  section  of  the 
statute  the  legislature  regarded  the  presentation  of  ac- 
ceptance as  a  demand  for  an  acceptance,  which,  when  the 
bill  is  retained  by  the  drawee,  implies  a  demand  for  its 
return  within  the  time  specified,  and  that,  therefore,  the 
neglect  or  failure  to  return  is  a  refusal  to  return  the  bill. 
As  said  by  this  Court  in  First  Nat.  Bank  v.  McMichael, 
supra,  if  a  bank  does  not  pay  or  accept  a  check,  it  is  bound 
to  refuse  it.  And  this  is  more  clearly  disclosed  as  the  true 
interpretation  of  the  word  'refuses'  in  this  connection, 
when  we  consider  that  the  consequences  to  the  holder  of 
the  nonreturn  of  the  bill  are  the  same  whether  it  follows 
a  demand,  additional  to  the  presentation  for  acceptance 
and  a  refusal,  or  simply  a  neglect  or  failure  to  return 
after  the  demand  implied  by  its  presentation  for  accept- 
ance. If  the  section  has  in  view  the  protection  of  the 
holder,  as  it  manifestly  has,  then  it  was  evidently  the  in- 
tention of  the  legislature  that  the  nonreturn  of  the  bill 
within  the  specified  time,  regardless  of  the  clause,  will 
make  the  drawee  an  acceptor. " 

Question  533:  (1.)  If  a  bill  is  sent  to  a  drawee  for  acceptance, 
and  he  merely  refuses  to  return  the  bill,  is  that  in  itself  at  the 
expiration  of  any  period  deemed  acceptance? 

(2.)     In  what  two  ways  is  acceptance  made? 


ACCEPTANCE  777 

Sec.  379.    At  What  Stage  Bill  May  Be  Accepted. 

Case  No.  534.  Uniform  Negotiable  Instruments  Act, 
Sec.  138. 

"A  bill  may  be  accepted  before  it  has  been  signed  by 
the  drawer,  or  while  otherwise  incomplete,  or  when  it  is 
overdue,  or  after  it  has  been  dishonored  by  a  previous  re- 
fusal to  accept,  or  by  non-payment.  But  when  a  bill  pay- 
able after  sight  is  dishonored  by  non-acceptance  and  the 
drawee  subsequently  accepts  it,  the  holder,  in  the  absence 
of  any  different  agreement,  is  entitled  to  have  the  bill 
payable  accepted  as  of  the  date  of  the  first  presentment. ' ' 

Question  534:    What  are  the  requirements  of  this  section? 

Sec.  380.    General  or  Qualified  Acceptance. 

Case  No.  535.  Uniform  Negotiable  Instruments  Act, 
Sees.  140,  141,  142. 

"[Sec.  140.]  An  acceptance  to  pay  at  a  particular 
place  is  a  general  acceptance  unless  it  expressly  states 
that  the  bill  is  to  be  paid  there  only,  and  not  elsewhere. 

"[Sec.  141.]     An  acceptance  is  qualified  which  is: 

"1.  Conditional;  that  is  to  say,  which  makes  payment 
by  the  acceptor  dependent  on  the  fulfillment  of  a  condi- 
tion therein  stated. 

"2.  Partial;  that  is  to  say,  an  acceptance  to  pay  part 
only  of  the  amount  for  which  the  bill  is  drawn. 

"3.  Local;  that  is  to  say,  an  acceptance  to  pay  only  at 
a  particular  place. 

"4.  Qualified  as  to  time. 

"5.  The  acceptance  of  some  one  or  more  of  the  drawees 
but  not  of  all. 

' '  [Sec.  142.]  The  holder  may  refuse  to  take  a  qualified 
acceptance,  and  if  he  does  not  obtain  an  unqualified  ac- 
ceptance, he  may  treat  the  bill  as  dishonored  by  non- 
acceptance.  Where  a  qualified  acceptance  is  taken,  the 
drawer  and  indorsers  are  discharged  from  liability  on 
the  bill,  unless  they  have  expressly  or  impliedly  author- 


778  NEGOTIABLE  PAPER 

ized  the  holder  to  take  a  qualified  acceptance,  or  subse- 
quently assent  thereto.  "When  the  drawer  or  indorser  re- 
ceives notice  of  a  qualified  acceptance,  he  must  within  a 
reasonable  time  express  his  dissent  to  the  holder,  or  he 
will  be  deemed  to  have  assented  thereto. ' ' 

Question  535:  (1.)  A,  as  drawee,  writes  across  the  bill  "Ac- 
cepted, payable  at  First  National  Bank"  (the  bill  otherwise 
naming  no  place  of  payment)  and  returns  it  to  the  holder,  who 
refuses  to  take  such  acceptance  and  treats  the  bill  as  dishonored. 
Has  it  been  dishonored  ? 

(2.)     In  what  ways  may  an  acceptance  be  qualified? 

(3.)  If  the  acceptance  is  qualified,  must  the  holder  content 
himself  with  such  acceptance  ?    "What  can  he  do  ¥ 

(4.)  What  is  the  effect  of  a  refusal  to  dissent  upon  receiving 
notice  of  a  qualified  acceptance  ? 


CHAPTER    SIXTY-EIGHT 
PRESENTMENT  FOR  ACCEPTANCE 

§  381.  When  required.  §  384.  Delay  in  presenting  and  pre- 

§  382.  Presentment    for    acceptance  sentment  excused  when. 

within  what  time.  §  385.  Dishonor    by    non-acceptance 

§  383.  Requirements  as  to  present-  and  rights  accruing  there- 

ment  for  acceptance.  under. 

Sec.  381.    When  Presentment  for  Acceptance  Required. 

Case  No.  536.  Uniform  Negotiable  Instruments  Act, 
Sec.  143. 

1 '  Presentment  for  acceptance  must  be  made : 

1 '  1.  Where  the  bill  is  payable  after  sight,  or  any  other 
case  where  presentment  for  acceptance  is  necessary  in 
order  to  fix  the  maturity  of  the  instrument;  or, 

1 '  2.  Where  the  bill  is  drawn  payable  elsewhere  than  at 
the  residence  or  place  of  business  of  the  drawee. 

1 '  In  no  other  case  is  presentment  for  acceptance  neces- 
sary in  order  to  render  any  party  to  the  bill  liable. ' ' 

Question  536:  In  what  cases  must  presentment  for  accept- 
ance be  made? 

Sec.  382.    Presentment  for  Acceptance  Within  What 

Time. 

Case  No.  537.  Uniform  Negotiable  Instruments  Act, 
Sec.  144. 

"Sec.  144.  Except  as  herein  otherwise  provided,  the 
holder  of  a  bill  which  is  required  by  the  next  preceding 

779 


780  NEGOTIABLE  PAPER 

section  to  be  presented  for  acceptance  must  either  present 
it  for  acceptance  or  negotiate  it  within  a  reasonable  time. 
If  he  fails  to  do  so  the  drawer  and  all  indorsers  are  dis- 
charged. " 

Question  537:  Within  what  time  must  presentment  for 
acceptance  be  made? 

Sec.  383.    Requirements  as  to  Presentment  for 
Acceptance. 

Case  No.  538.  Uniform  Negotiable  Instruments  Act, 
Sees.  145, 146. 

' '  Presentment  for  acceptance  must  be  made  by  or  on  be- 
half of  the  holder  at  a  reasonable  hour,  on  a  business  day, 
and  before  the  bill  is  overdue,  to  the  drawee  or  some  per- 
son authorized  to  accept  or  refuse  acceptance  on  his  be- 
half ;  and, 

"1.  Where  a  bill  is  addressed  to  two  or  more  drawees 
who  are  not  partners,  presentment  must  be  made  to  them 
all,  unless  one  has  authority  to  accept  or  refuse  accept- 
ance for  all,  in  which  case  presentment  may  be  made  to 
him  only. 

"2.  Where  the  drawee  is  dead,  presentment  may  be 
made  to  his  personal  representatives. 

"3.  Where  the  drawee  has  been  adjudged  a  bankrupt 
or  an  insolvent,  or  has  made  an  assignment  for  the  bene- 
fit of  creditors,  presentment  may  be  made  to  him  or  to 
his  trustee  or  assignee. 

"A  bill  may  be  presented  for  acceptance  on  any  day 
on  which  negotiable  instruments  may  be  presented  for 
payment  under  the  provisions  of  sections  72  and  85  of 
this  Act.  When  Saturday  is  not  otherwise  a  holiday,  pre- 
sentment for  acceptance  may  be  made  before  12:00 
o'clock  noon  on  that  day." 

Question  538:  When  must  presentment  for  acceptance  be 
made  ?    To  whom,  under  varying  circumstances  ? 


PRESENTMENT  FOR  ACCEPTANCE     781 

Sec.  384.    Delay  in  Presenting  and  Presentment  Excused 

When. 

Case.  No.  539.  Uniform  Negotiable  Instruments  Act, 
Sees.  147,  148. 

u  [Sec.  147.]  Where  the  holder  of  a  bill  drawn  pay- 
able elsewhere  than  at  the  place  of  business  or  residence 
of  the  drawee  has  not  time,  with  the  exercise  of  reason- 
able diligence  to  present  the  bill  for  acceptance  before 
presenting  it  for  payment  on  the  day  that  it  falls  due,  the 
delay  caused  by  presenting  the  bill  for  acceptance  before 
presenting  it  for  payment  is  excused  and  does  not  dis- 
charge the  drawers  and  indorsers. 

1  '[Sec.  148.]  Presentment  for  acceptance  is  excused 
and  a  bill  may  be  treated  as  dishonored  by  non-accept- 
ance in  either  of  the  following  cases : 

"1.  Where  the  drawee  is  dead,  or  has  absconded,  or 
is  a  fictitious  person  or  a  person  not  having  capacity  to 
contract  by  bill. 

"2.  Where,  after  the  exercise  of  reasonable  diligence 
presentment  cannot  be  made. 

'  '3.  Where,  although  presentment  has  been  irregular, 
acceptance  has  been  refused  on  some  ground.' ' 

Question  539:  When  is  presentment  excused  ?    Delay  excused  ? 

Sec.  385.    Dishonor  by  Non-acceptance  and  Rights 
Accruing  Thereunder. 

Case  No.  540.  Uniform  Negotiable  Instruments  Act, 
Sees.  149, 150,  151. 

" [Sec.  149.]     A  bill  is  dishonored  by  non-acceptance: 

1  *  1.  When  it  is  duly  presented  for  acceptance  and  such 
an  acceptance  as  is  prescribed  by  this  Act  is  refused  or 
can  not  be  obtained ;  or 

1 '  2.  When  a  presentment  for  acceptance  is  excused  and 
the  bill  is  not  accepted. 


782  NEGOTIABLE  PAPER 

"[Sec.  150.]  Where  a  bill  is  duly  presented  for  ac- 
ceptance and  is  not  accepted  within  the  prescribed  time, 
the  person  presenting  it  must  treat  the  bill  as  dishon- 
ored by  non-acceptance,  or  he  loses  the  right  of  recourse 
against  the  drawer  and  indorser. 

"  [Sec.  151.]  When  a  bill  is  dishonored  by  non-accept- 
ance, an  immediate  right  of  recourse  against  the  drawers 
and  indorsers  accrues  to  the  holders,  and  no  presentment 
for  payment  is  necessary.,, 

Question  540:  (1.)  When  is  a  bill  dishonored  by  non-accept- 
ance? 

(2.)     If  non-accepted,  what  right  has  the  holder? 


CHAPTER    SIXTY-NINE 
PROTEST 

§  386.  Protest  necessary  when.  §  390.  Protest  for  better  security. 

§  387.  Requirements  as  to  protest.  §  391.  Protest  dispensed  with  when. 

§  388.  By    whom    protest    may    be  §  392.  Protest  on  lost  or  destroyed 

made.  bill. 

§  389.  When  and  where  protest  must 

be  made. 

Sec.  386.    Protest  Necessary  When. 

Case  No.  541.  Uniform  Negotiable  Instruments  Act, 
Sec.  152. 

"Where  a  foreign  bill  appearing  on  its  face  to  be 
such,  is  dishonored  by  non-acceptance,  and  when  such  a 
bill  which  has  not  previously  been  dishonored  by  non- 
acceptance  is  dishonored  by  non-payment,  it  must  be  duly 
protested  for  non-payment.  If  it  is  not  so  protested, 
the  drawer  and  indorsers  are  discharged.  Where  a  bill 
does  not  on  its  face  purport  to  be  a  foreign  bill,  protest 
thereof,  in  case  of  dishonor,  is  unnecessary. ' ' 

Question  541 :  When  is  protest  necessary  ?  Is  it  necessary  on 
an  inland  bill  or  a  promissory  note  ?  What  is  the  effect  of  omit- 
ting protest  when  necessary  ? 

Sec.  387.    Requirements  as  to  Protest. 

Case  No.  542.  Uniform  Negotiable  Instruments  Act, 
Sec.  153. 

"The  protest  must  be  annexed  to  the  bill  or  must  con- 
tain a  copy  thereof,  and  must  be  under  the  hand  and  seal 
of  the  notary  making  it  and  must  specify : 

783 


784  NEGOTIABLE  PAPER 

1 '  1.  The  time  and  place  of  presentment. 

i  '2.  The  fact  that  presentment  was  made  and  the  man- 
ner thereof. 

"3.  The  cause  or  reason  for  protesting  the  bill. 

"4.  The  demand  made  and  the  answer  given,  if  any,  of 
the  fact,  that  the  drawee  or  acceptor  could  not  be  found. ' ' 

Question  542:    What  are  the  requirements  as  to  protest? 

Sec.  388.    By  Whom  Protest  May  Be  Made. 

Case  No.  543.  Uniform  Negotiable  Instruments  Act, 
Sec.  154. 

" Protest  may  be  made  by: 

"1.  A  notary  public;  or, 

"2.  By  any  respectable  resident  of  the  place  where  the 
bill  is  dishonored,  in  the  presence  of  two  or  more  credible 
witnesses." 

Question  543:    By  whom  may  protest  be  made? 

Sec.  389.    When  and  Where  Protest  Must  Be  Made. 

Case  No.  544.  Uniform  Negotiable  Instruments  Act, 
Sees.  155, 156. 

"When  a  bill  is  protested,  such  protest  must  be  made 
on  the  day  of  its  dishonor,  unless  delay  is  excused  as 
herein  provided.  When  a  bill  has  been  duly  noted,  the 
protest  may  be  subsequently  extended  as  of  the  date  of 
the  noting. 

"A  bill  must  be  protested  at  the  place  where  it  is  dis- 
honored, except  that  when  a  bill  drawn  payable  at  the 
place  of  business  or  residence  of  some  person,  other  than 
the  drawee,  has  been  dishonored  by  non-acceptance,  it 
must  be  protested  for  non-payment  at  the  place  where  it 
is  expressed  to  be  payable ;  and  no  other  presentment  for 
payment  to,  or  demand  on,  the  drawee  is  necessary." 

Question  554:    When  must  protest  be  made  ?     Where  ? 


PROTEST  786 

Sec.  390.    Protest  for  Better  Security. 

Case  No.  545.  Uniform  Negotiable  Instruments  Act, 
Sec.  158. 

"When  the  acceptor  has  been  adjudged  a  bankrupt  or 
an  insolvent  or  has  made  an  assignment  for  the  benefit 
of  creditors,  before  the  bill  matures,  the  holder  may 
cause  the  bill  to  be  protested  for  better  security  against 
the  drawer  and  indorsem" 

Question  545:    "What  is  protest  for  better  security? 

Sec.  391.    Protest  Dispensed  With  When. 

Case  No.  546.  Uniform  Negotiable  Instruments  Act, 
Sec.  159. 

''Protest  is  dispensed  with  by  any  circumstances 
which  would  dispense  with  notice  of  dishonor.  Delay  in 
noting  or  protesting  is  excused  when  delay  is  caused  by 
circumstances  beyond  the  control  of  the  holder  and  not 
imputable  to  his  default,  misconduct  or  negligence. 
When  the  cause  of  delay  ceases  to  operate,  the  bill  must 
be  noted  or  protested  with  reasonable  diligence." 

Question  546:    When  will  protest  be  dispensed  with? 

Sec.  392.    Protest  on  Lost  or  Destroyed  Bill. 

Case  No.  547.  Uniform  Negotiable  Instruments  Act, 
Sec.  160. 

"Where  a  bill  is  lost  or  destroyed,  or  is  wrongly  de- 
tained from  the  person  entitled  to  hold  it,  protest  may 
be  made  on  a  copy  or  written  particulars  thereof." 

Question  547:    How  is  protest  made  on  lost  or  destroyed  bill? 


CHAPTER    SEVENTY 
ACCEPTANCE  AND  PAYMENT  FOR  HONOR 


393.  Acceptance     for     honor;     re-       §  394.  Payment  for  honor, 
quirements      and      effect 
thereof. 


Sec.   393.    Acceptance   for   Honor — Requirements   and 
Effect  Thereof. 

Case  No.  548.  Uniform  Negotiable  Instruments  Act, 
Sees.  161-170. 

"  [Sec.  161.]  Where  a  bill  of  exchange  has  been  pro- 
tested for  dishonor  by  non-acceptance,  or  protested  for 
better  security  and  is  not  overdue,  any  person  not  being 
a  party  already  liable  thereon,  may,  with  the  consent  of 
the  holder,  intervene  and  accept  the  bill  supra  protest  for 
the  honor  of  any  party  liable  thereon  or  for  the  honor 
of  the  person  for  whose  account  the  bill  is  drawn.  The 
acceptance  for  honor  may  be  for  part  only  bf  the  sum  for 
which  the  bill  is  drawn,  and  where  there  has  been  an  ac- 
ceptance for  honor  for  one  party  there  may  be  a  further 
acceptance  by  a  different  person  for  the  honor  of  another 
party. 

"[Sec.  162.]  An  acceptance  for  honor  supra  protest 
must  be  in  writing  and  indicate  that  it  is  an  acceptance 
for  honor,  and  must  be  signed  by  the  acceptor  for  honor. 

"  [Sec.  163.]  Where  an  acceptance  for  honor  does  not 
expressly  state  for  whose  honor  it  was  made,  it  is  deemed 
to  be  an  acceptance  for  the  honor  of  the  drawer. 

786 


ACCEPTANCE  FOR  HONOR  787 

"[Sec.  164.]  The  acceptor  for  honor  is  liable  to  the 
holder  and  to  all  parties  to  the  bill  subsequent  to  the 
party  for  whose  honor  he  has  accepted. 

"  [Sec.  165.]  The  acceptor  for  honor  by  such  accept- 
ance engages  that  he  will,  on  due  presentment,  pay  the 
bill  according  to  the  terms  of  his  acceptance :  Provided, 
it  shall  not  have  been  paid  by  the  drawee :  And  provided, 
also,  that  it  shall  have  been  duly  presented  for  payment 
and  protested  for  non-payment  and  notice  of  dishonor 
given  to  him. 

"[Sec.  166.]  When  a  bill  payable  after  sight  is  ac- 
cepted for  honor,  its  maturity  is  calculated  from  the  date 
of  the  noting  for  non-acceptance  and  not  from  the  date 
of  the  acceptance  for  honor. 

[Sec.  167.]  Where  a  dishonored  bill  has  been  accepted 
for  honor  supra  protest  or  contains  a  reference  in  case 
of  need,  it  must  be  protested  for  non-payment  before  it 
is  presented  for  payment  to  the  acceptor  for  honor  or 
referee  in  case  of  need. 

"[Sec.  168.]  Presentment  for  payment  to  the  ac- 
ceptor for  honor  must  be  made  as  follows : 

"1.  If  it  is  to  be  presented  in  the  place  where  the  pro- 
test for  non-payment  was  made,  it  must  be  presented  not 
later  than  the  day  following  its  maturity. 

"2.  If  it  is  to  be  presented  in  some  other  place  than  the 
place  where  it  was  protested,  then  it  must  be  forwarded 
within  the  time  specified  in  section  104. 

1 '  [Sec.  169.]  The  provisions  of  section  81  apply  where 
there  is  delay  in  making  presentment  to  the  acceptor  for 
honor  or  referee  in  case  of  need. 

"[Sec.  170.]  When  the  bill  is  dishonored  by  the  ac- 
ceptor for  honor,  it  must  be  protested  for  non-payment 
by  him." 

Question  548:  (1.)  What  is  acceptance  supra  protest?  How 
must  it  be  made? 

(2.)     Where  not  stated,  for  whose  honor  is  it  presumed  made? 
(3.)     To  whom  is  acceptor  for  honor  liable?    Provided  what? 


788  NEGOTIABLE  PAPER 

Sec.  394.    Payment  for  Honor. 

Case  No.  549.  Uniform  Negotiable  Instruments  Act, 
Sees.  171-177. 

"  [Sec.  171.]  Where  a  bill  has  been  protested  for  non- 
payment, any  person  may  intervene  and  pay  it  supra 
protest  for  the  honor  of  any  person  liable  thereon  or  for 
the  honor  of  the  person  for  whose  account  it  was  drawn. 

"[Sec.  172.]  The  payment  for  honor  supra  protest 
in  order  to  operate  as  such,  and  not  as  a  mere  voluntary 
payment,  must  be  attested  by  a  notarial  act  of  honor, 
which  may  be  appended  to  the  protest  or  form  an  exten- 
sion to  it. 

"[Sec.  173.]  The  notarial  act  of  honor  must  be 
founded  on  a  declaration  made  by  the  payer  for  honor  or 
by  his  agent  in  that  behalf  declaring  his  intention  to  pay 
the  bill  for  honor  and  for  whose  honor  he  pays. 

"  [Sec.  174.]  Where  two  or  more  persons  offer  to  pay 
a  bill  for  the  honoisof  different  parties,  the  person  whose 
payment  will  discharge  most  parties  to  the  bill  is  to  be 
given  preference. 

"  [Sec.  175.]  Where  a  bill  has  been  paid  for  honor,  all 
parties  subsequent  to  the  party  for  whose  honor  it  is 
paid,  are  discharged,  but  the  payer  for  honor  is  subro- 
gated for,  and  succeeds  to,  both  the  rights  and  duties  of 
the  holder  as  regards  the  party  for  whose  honor  he  pays 
and  all  parties  liable  to  the  latter. 

"  [Sec.  176.]  Where  the  holder  of  a  bill  refuses  to  re- 
ceive payment  supra  protest,  he  loses  his  right  of  re- 
course against  any  party  who  would  have  been  discharged 
by  such  payment. 

"[Sec.  177.]  The  payer  for  honor,  on  paying  to  the 
holder  the  amount  of  the  bill  and  the  notarial  expenses 
incidental  to  its  dishonor,  is  entitled  to  receive  both  the 
bill  itself  and  the  protest.' ' 

Question  549:  "What  is  payment  for  honor  ?  How  is  it  made? 
What  is  its  effect  on  rights  and  liabilities? 


CHAPTER    SEVENTY-ONE 

BILLS  IN  A  SET 

Sec.  395.    Bills  in  a  Set  Defined. 

Case  No.  550.  Uniform  Negotiable  Instruments  Act, 
Sees.  178-183. 

"  [Sec.  178.]  Where  a  bill  is  drawn  in  a  set,  each  part 
of  the  set  being  numbered  and  containing  a  reference  to 
other  parts,  the  whole  of  the  parts  constitute  one  bill. 

"  [Sec.  179.]  Where  two  or  more  parts  of  a  set  are 
negotiated  to  different  holders  in  due  course,  the  holder 
whose  title  first  accrues  is,  as  between  such  holders,  the 
true  owner  of  the  bill.  But  nothing  in  this  section  af- 
fects the  rights  of  a  person  who  in  due  course  accepts 
or  pays  the  part  first  presented  to  him. 

"  [Sec.  180.]  Where  the  holder  of  a  set  indorses  two 
or  more  parts  to  different  persons  he  is  liable  on  every 
such  part  and  every  indorser  subsequent  to  him  is  liable 
on  the  part  he  has  himself  indorsed,  as  if  such  parts  were 
separate  bills. 

"[Sec.  181.]  The  acceptance  may  be  written  on  any 
part  and  it  must  be  written  on  one  part  only.  If  the 
drawee  accepts  more  than  one  part,  and  such  accepted 
parts  are  negotiated  to  different  holders  in  due  course,  he 
is  liable  on  every  such  part  as  if  it  were  a  separate  bill. 

"  [Sec.  182.]  When  the  acceptor  of  a  bill  drawn  in  a 
set  pays  it  without  requiring  the  part  bearing  his  accept- 
ance to  be  delivered  up  to  him,  and  that  part  at  maturity 
is  outstanding  in  the  hands  of  a  holder  in  due  course,  he 
is  liable  to  the  holder  thereon. 

789 


790  NEGOTIABLE  PAPER 

"[Sec.  183.]  Except  as  herein  otherwise  provided, 
where  any  one  part  of  a  bill  drawn  in  a  set  is  discharged 
by  payment  or  otherwise,  the  whole  bill  is  discharged." 

Question  550:  (1.)  Where  a  bill  is  drawn  in  a  set  what  is 
the  relation  of  each  part  to  the  set  ? 

(2.)  If  different  parts  are  indorsed  to  different  holders, 
what  is  the  effect  ? 

(3.)     Should  the  drawee  accept  more  than  one  part? 

Case  No.  551.    Hazzard  v.  Shelton,  15  Ala.  62. 

Colliee,  C.  J. :  "It  is  common,  and  the  practice  is  of 
long  standing,  for  the  drawer  to  make  and  deliver  to  the 
payee  several  parts,  usually  designated  a  set  of  the  same 
bills  of  exchange,  each  one  of  which  states  upon  its  face, 
that  either  part  of  the  set  being  paid,  the  bill  is  to  be  con- 
sidered discharged.  A  bill  is  thus  drawn  to  avoid  de- 
lays and  inconveniences,  which  might  otherwise  arise 
from  its  loss  or  miscarriage,  and  also  to  enable  the  holder 
to  transmit  the  same  by  different  conveyances  to  the 
drawee,  so  as  to  insure  the  most  prompt  and  speedy  pre- 
sentment for  acceptance  and  payment.  Chitty  on  Bills, 
9  Am.  ed.  175-6;  Story  on  Bills,  Sees.  66,  67.  The  bona 
fide  holder  of  any  one  of  the  set,  if  accepted,  it  is  said, 
may  recover  the  amount  from  the  acceptor,  who  would 
not  be  bound  to  accept  any  other  of  the  set,  which  was 
held  by  another  person,  although  he  might  be  the  first 
holder.  So  payment  to  the  holder  of  one  part  will  be  a 
complete  discharge  of  the  acceptor  as  to  all  the  other 
parts.  Id.  176;  Id.  Sec.  226.  If  one  of  the  parts  has 
been  accepted,  the  payment  of  another  unaccepted  part 
will  not  liberate  the  acceptor  from  liability  to  pay  the 
holder  of  the  accepted  part,  and  such  acceptor  may  there- 
fore refuse  to  pay  the  bearer  of  the  unaccepted  part,  and 
may  compel  him,  if  he  suggests  that  he  has  lost  the  ac- 
cepted part,  to  find  sureties  against  his  liability  to 
pay  the  accepted  part.  See  Wells  v.  Whitehead,  15  Wend. 
Rep.  527;  Chit,  on  Bills,  supra.  And  it  would  seem  to 
have  been  held,  that  a  person  to  whom  any  part  of  the 


BILLS  IN  A  SET  791 

set  is  first  transferred,  acquires  a  property  in  all  the 
other  parts  and  may  maintain  trover  even  against  a 
bona  fide  holder,  who  subsequently,  by  transfer  or  oth- 
erwise, gets  possession  of  another  part  of  the  set.  Holds- 
worth  v.  Hunter,  10  Barnw.  &  C.  Rep.  449 ;  Perriera  v. 
Jopp,  Id.  450,  note,  a. 

"In  the  case  at  bar,  it  is  inferable  from  the  number 
declared  on  that  the  bill  was  drawn  in  a  set  of  two  parts, 
and  that  each' was  a  counterpart  of  the  other,  save  that 
one  was  called  the  'first,'  and  the  other  the  'second  of 
exchange.'  Each  part  requests  the  drawee  to  pay  it,  if 
the  other  is  'unpaid,'  and  is  equivalent  to  a  direction  to 
pay  it  only  in  that  event.  The  payment  of  one  part  then, 
according  to  the  literal  import  of  the  paper,  is  a  complete 
compliance  with  the  request  of  the  drawer,  and  if  the 
drawee  has  not  accepted  the  other  part,  he  is  under  no 
obligation  either  to  accept  or  pay  it.  If  he  is  in  any 
manner  chargeable  upon  it,  or  to  some  other  person  than 
the  plaintiff,  it  devolves  upon  him  to  prove  it,  as  a  ground 
of  defence,  and  the  holder  need  not  negative  by  proof  the 
existence  of  such  a  state  of  facts. 

"This  argument  is  not  inappropriate  to  the  case  of  a 
drawer  when  sued  for  the  default  of  the  drawee.  If  he 
pays  the  accepted  part  without  notice  of  the  adverse 
claim  of  some  third  person,  under  another  of  the  set,  he 
cannot  be  charged  a  second  time  upon  the  latter.  Here 
the  holder  of  the  accepted  number  is  asking  a  judgment 
upon  it.  The  payment  of  it,  we  have  seen,  would  be 
proper,  and  operate  a  discharge  of  the  liability  indicated 
by  the  entire  set;  and  the  authorities  cited  are  direct  to 
establish,  that  if  a  demand  of  payment  is  properly  shown 
or  excused,  then  he  is  entitled  to  recover." 

Question  551 :    What  is  the  purpose  of  drawing  a  bill  in  a  set  ? 


PART    XXIII 

PROMISSORY  NOTES  AND  CHECKS  PARTICU- 
LARLY CONSIDERED 

CHAPTER    SEVENTY-TWO 

IN  PARTICULAR  OF  PROMISSORY  NOTES  AND 

CHECKS 

§  396.  Negotiable   promissory  notes  §  399.  Certification  of  cheek  equiva- 

defined.  lent  of  acceptance. 

§  397.  Checks  defined.  §  400.  Effect  of  certification  on  lia- 
§  398.  When    check    must    be    pre-  bility  of  drawer. 

sented  for  payment.  §  401.  Check  as  an  assignment. 

Sec.  396.    Negotiable  Promissory  Notes  Defined. 

Case  No.  552.    Uniform  Negotiable  Instruments  Act, 
Sec.  184. 

"A  negotiable  promissory  note  within  the  meaning 
of  this  Act  is  an  unconditional  promise  in  writing  made 
by  one  person  to  another,  signed  by  the  maker,  engag- 
ing to  pay  on  demand  or  at  a  fixed  or  determinable  fu- 
ture time,  a  sum  certain  in  money  to  order  or  to  bearer. 
Where  a  note  is  drawn  to  the  maker's  own  order,  it  is 
not  complete  until  indorsed  by  him.  ■ ' 

Question  552. \    Define  a  negotiable  promissory  note. 

Sec.  397.    Checks  Defined. 

Case  No.  553.  Columbian  Bank  Co.  v.  Bowen,  134 
Wis.  218. 

792 


NOTES  AND  CHECKS  793 

(Set  out  as  Case  No.  498,  supra.) 
Question  553:    Define  a  cheek. 
Sec.  398.    When  Check  Must  Be  Presented  for  Payment. 

Case  No.  554.     Gordon  v.  Levine,  194  Mass.  418. 

Facts:  The  facts  are  given  in  the  opinion. 

Point  Involved:  Within  what  time  a  check  must  be 
presented  to  the  bank  for  payment  to  have  recourse 
against  the  drawer  in  case  of  loss  caused  by  delay. 

Morton,  J. :  *  *  This  is  an  action  upon  a  check  by  the 
plaintiff  as  payee  against  the  defendant  as  drawer.  The 
check  was  dated  December  30, 1905,  which  was  Saturday, 
though  there  was  some  question  whether  it  was  actually 
drawn  and  delivered  on  that  day  or  the  31st.  The  plain- 
tiff is  described  in  the  writ  as  of  Chelsea  and  the  defend- 
ant as  of  Boston.  The  bank  on  which  the  check  was 
drawn  was  in  Boston  and  the  check  was  drawn  and  deliv- 
ered there.  The  plaintiff  testified  that  the  defendant 
asked  him  not  to  present  the  check  for  a  couple  of  days 
as  he  did  not  have  sufficient  funds  to  meet  it,  but  that 
he  presented  it  Monday  morning,  January  1,  and  was  told 
there  was  no  funds,  and  that  he  went  to  see  the  defendant 
at  his  place  of  business  but  did  not  see  him.  The  plain- 
tiff also  testified  that  in  the  afternoon  of  the  same  day  he 
passed  the  check  to  one  Saievitz  in  payment  of  a  bill 
which  he  owed  him,  receiving  the  balance  in  cash.  And 
there  was  testimony  tending  to  show  that  on  the  next  day 
Saievitz  indorsed  it  to  one  Rootstein,  who  deposited  it 
on  January  4  in  the  Faneuil  Hall  National  Bank  in  Bos- 
ton for  collection,  and  that  the  bank's  messenger  went 
with  it  on  the  afternoon  of  the  following  day,  Friday, 
January  5,  to  the  bank  on  which  it  was  drawn,  the  Prov- 
ident Securities  and  Banking  Company,  and  found  its 
doors  closed.  The  plaintiff  also  testified  that  he  told  the 
defendant  that  the  bank  had  failed,  and  that  the  defend- 
ant promised  to  make  the  check  good.  The  defendant 
denied  this,  and  also  the  plaintiff's  statement  that  he  had 


794  NEGOTIABLE  PAPER 

asked  the  plaintiff  not  to  present  the  check  for  a  couple 
of  days,  and  introduced  testimony  tending  to  show  that 
at  the  time  when  the  check  was  drawn  he  had  sufficient 
funds  on  deposit  at  the  bank  to  meet  it,  and  continued 
to  have  down  to  the  failure  of  the  bank.  It  was  admitted 
that  the  bank  failed  on  Friday,  January  5,  and  the  de- 
fendant introduced  evidence  tending  to  show  that  he  had 
received  no  payment  or  dividend  on  account  of  his  de- 
posit. There  was  a  verdict  for  the  plaintiff,  and  the  case 
is  here  on  exceptions  by  the  defendant  to  the  refusal  of 
the  judge  to  give  certain  instructions  that  were  requested, 
and  to  the  admission  of  certain  testimony.     *     *     * 

1  l  The  general  rule  is  as  was  stated  by  the  judge  and  as 
is  provided  in  the  Negotiable  Instruments  Act  (R.  L.  c. 
73,  Sec.  203)  that  a  check  must  be  presented  for  payment 
within  a  reasonable  time  after  it  is  issued.  If  it  is  not 
so  presented,  and  the  drawer  sustains  a  loss  by  reason  of 
the  failure  of  the  drawee,  he  will  be  discharged  from  lia- 
bility to  the  extent  of  such  loss,  continuing  liable  other- 
wise. This  results  from  the  nature  of  the  instrument 
which  though  denned  in  the  Negotiable  Instruments  Act 
(R.  L.  c.  73,  Sec.  202)  as  a  bill  of  exchange  drawn  on  a 
bank  payable  on  demand  is  intended  for  immediate  use 
(Mussey  v.  Eagle  Bank,  9  Met.  306,  314),  and  not  to  cir- 
culate as  a  promissory  note,  and  it  consequently  would 
be  unjust  to  subject  the  drawer  to  the  loss  if  any  result- 
ing from  failure  to  present  it  for  payment  within  a  rea- 
sonable time.  What  is  a  reasonable  time,  however,  still 
remains  for  consideration.  The  Negotiable  Instruments 
Act  provides  generally  (R.  L.  c.  73,  Sec.  209),  as  the 
judge  said,  that  'In  determining  what  is  a  "reasonable 
time"  or  an  "unreasonable  time"  regard  is  to  be  had  to 
the  nature  of  the  instrument,  the  usage  of  trade  or  busi- 
ness, if  any,  with  respect  to  such  instruments,  and  the 
facts  of  the  particular  case.'  This,  however,  would  not 
seem  to  lay  down  or  to  establish  any  new  rule.  The  na- 
ture of  the  instrument  and  the  facts  of  the  particular  case 
have  always  been  considered  in  passing  upon  the  ques- 
tion of  reasonable  or  unreasonable  time.    In  deciding, 


NOTES  AND  CHECKS  795 

therefore,  whether  this  check  was  presented  within  a  rea- 
sonable time,  if  presented  on  Friday,  resort  must  be  had 
to  the  rules  which  have  been  hitherto  established  in  sim- 
ilar cases.  And  one  of  the  rules  which  has  been  estab- 
lished is,  that  where  the  drawer  and  drawee  and  the  payee 
are  all  in  the  same  city  or  town,  a  check,  to  be  presented 
within  a  reasonable  time,  should  be  presented  at  some 
time  before  the  close  of  banking  hours  on  the  day  after  it 
is  issued,  and  that  its  circulation  from  hand  to  hand  will 
not  extend  the  time  of  presentment  to  the  detriment  of 
the  drawer.  If  it  is  presented  and  paid  afterwards  the 
drawer  suffers  no  harm.  But  if  not  presented  within 
the  time  thus  fixed,  and  there  is  a  loss,  it  falls  not  on 
him  but  on  the  holder.' ' 

Question  554:  (1.)  Within  what  time  must  a  check  be  pre- 
sented for  payment? 

(2.)     "What  were  the  facts  in  this  case? 

Sec.  399.    Certification  of  Check  Equivalent  to 
Acceptance. 

Case  No.  555.  Uniform  Negotiable  Instruments  Act, 
Sec.  187. 

1 'Where  a  check  is  certified  by  the  bank  on  which  it  is 
drawn,  it  is  equivalent  to  an  acceptance.,, 

Question  555:    State  the  provisions  of  this  section. 

Case  No.  556.    Wisner  v.  First  National  Bank. 
(Set  out  as  Case  No.  583,  supra.) 

Question  556:    See  the  questions  set  out  after  the  case. 

Case  No.  557.  Poess  v.  Twelfth  Ward  Bank,  86  N.  Y. 
Suppl.  857. 

Facts:  Poess  drew7  a  check  on  the  Twelfth  Ward  Bank, 
payable  to  his  own  order,  for  $500,  and  had  it  certified  by 
the  bank.    Not  using  it,  he  indorsed  it  in  blank,  made  out 


796  NEGOTIABLE  PAPER 

a  deposit  slip  and  went  to  the  bank  to  re-deposit  it.  On 
reaching  the  bank,  the  check  was  missing.  He  ordered 
payment  stopped.  The  check  turned  up  in  a  few  days 
from  Zuccaro,  a  banker,  who  had  acquired  it  in  due  course 
from  a  man  who  could  not  be  found.  Plaintiff  told  Zuc- 
caro that  he  would  have  to  pay  the  check  and  Zuccaro 
thereupon  paid  plaintiff  $500,  who  deposited  it  with  the 
Twelfth  Ward  Bank.  The  bank  then  refused  to  pay 
plaintiff  this  $500  unless  protected  by  a  bond  on  the 
ground  that  Zuccaro  might  sue  it.  Poess  sues  to  recover 
the  money. 

Point  Involved:  Whether  Poess  could  hold  the  bank 
for  the  money  thus  deposited ;  whether  Poess  could  have 
stopped  payment  as  against  a  holder  in  due  course  of  the 
lost  check;  whether  Zuccaro,  who  paid  the  maker  the 
money  which  he  was  entitled  to  keep,  could  recover  it 
from  the  bank. 

GlLDEESLEEVE,  J.:      "*       *       * 

"The  relation  between  the  bank  and  the  plaintiff  was 
that  of  debtor  and  creditor.  The  effect  of  the  certifica- 
tion of  the  check  by  the  defendant  was  to  charge  plaintiff 
with  $500,  pass  that  amount  to  the  credit  of  the  check,  and 
make  the  defendant,  as  acceptor,  primarily  liable  for  its 
payment  to  any  bona  fide  holder  thereof.  Jersey  City 
First  National  Bank  v.  Leach,  52  N.  Y.  350,  11  Am.  Rep. 
708 ;  Daniel  on  Negotiable  Instruments,  Sec.  1603 ;  People 
v.  St.  Nicholas  Bank,  77  Hun,  160,  28  N.  Y.  Supp.  407. 

"The  check  in  question  had  been  duly  indorsed,  and 
was  negotiable.  Its  possession  by  Zuccaro,  before  he 
passed  it  forward  for  collection  was  prima  facie  evidence 
of  title.  His  good  faith  is  not  assailed,  and  his  title  to 
the  check  was  not  affected  by  the  fact  that  it  had  been 
stolen  and  never  had  a  valid  delivery.  Zuccaro  received 
the  check  in  the  usual  course  of  business,  and  without 
notice  of  any  infirmity.  'Where  the  instrument  is  no 
longer  in  the  possession  of  a  party  whose  signature  ap- 
pears thereon,  a  valid  and  intentional  delivery  is  pre- 
sumed until  the  contrary  is  proved. '    Negotiable  Instru- 


NOTES  AND  CHECKS  797 

ment  Law  (Laws  1897,  P.  719,  c.  612) ;  Am.  &  Eng.  Ency. 
of  Law  (2d  Ed.)  p.  320;  Shipley  v.  Carroll,  45  111.  285; 
Case  v.  Mechanics'  Banking  Ass'n,  4  N.  Y.  166. 

1 '  For  the  reasons  above  stated,  as  between  Zuccaro  and 
the  defendant  he  was  entitled  to  have  the  check  honored 
and  paid,  and  it  must  be  presumed  that  the  payment  of 
the  check  by  the  defendant  was  made  to  the  lawful  holder 
in  good  faith.  Notice  to  the  defendant  that  the  check  had 
been  lost,  and  the  direction  by  the  plaintiff  not  to  pay  the 
check  if  presented,  could  not  operate,  under  the  circum- 
stances, to  the  prejudice  of  Zuccaro  and  affect  his  rights. 
Nassau  Bank  v.  Broadway  Bank,  54  Barb.  236;  Am.  & 
Eng.  Ency.  of  L.  (2d  Ed.),  vol.  19,  p.  553.  The  author- 
ities above  cited  also  support  this  latter  proposition. 

' '  We  therefore  see  that,  if  Zuccaro  had  not  repaid  the 
check  in  due  course,  the  parties  to  this  action  would  have 
been  powerless  to  compel  him  to  refund.  But  Zuccaro 
having,  on  their  demand,  voluntarily  repaid  the  amount 
he  had  thus  received,  the  question  presented  is  whether 
he  can  maintain  any  further  claim  against  the  defendant. 
We  think  this  question  demands  an  answer  favorable  to 
the  plaintiff.  The  defendant  lost  nothing  by  certifying 
and  paving  the  check  in  due  course,  because  it  had  appro- 
priated sufficient  funds  of  the  plaintiff  for  that  purpose 
at  the  time  of  the  certification,  and  upon  its  payment  in 
due  course  the  check  became  discharged,  under  the  ex- 
press provision  of  Sec.  90  of  the  Negotiable  Instruments 
Law  (Laws  1897,  p.  731,  c.  612).  That  being  so,  Zuccaro 
can  no  longer  maintain  an  action  against  the  defendant 
upon  its  acceptance  or  certification.  The  check  was 
simply  surrendered  to  him  after  its  payment  in  due 
course  to  enable  him  to  pursue  his  remedy  against  the 
party  from  whom  he  had  taken  it.  Much  less  can  an  ac- 
tion be  maintained  by  any  one  claiming  through  him.  The 
check  is  not  in  the  record,  but,  since  it  was  paid  by  the 
defendant,  we  must  infer  that  it  bears  upon  its  face  un- 
mistakable evidence  of  payment.  There  never  hereafter 
can  be  a  bona  fide  holder  thereof.  The  defendant's  situa- 
tion is  to  all  intents  and  purposes  the  same  as  if  an  honest 


798  NEGOTIABLE  PAPER 

finder  of  the  check  had  returned  it  to  the  bank,  making 
no  claim  upon  it. 

"The  rule  on  this  subject  is  that,  if  the  holder  expressly 
renounces  a  claim  against  the  acceptor,  'his  hands  are 
united,  and  he  is  left  free  to  account  to  the  drawer  for  the 
funds  in  his  hands,  or  is  no  longer  bound  to  apply  them 
to  the  payment  of  the  bill.  To  permit  the  holder,  after 
thus  exonerating  the  acceptor,  to  recur  to  him  for  pay- 
ment would  work  in  many  cases  the  harshest  injustice, 
and  he  is  estopped  from  doing  so. '  Daniel  on  Negotiable 
Instruments,  Sees.  542,  544.  Here  the  discharge  of  the 
defendant  was  complete  when  the  check  was  paid  in  due 
course.  The  defendant's  messenger,  for  plaintiff's 
benefit,  demanded  the  repayment  of  the  money  the  de- 
fendant had  paid  Zuccaro,  and  threatened  to  hold  him 
responsible  for  it.  He  yielded  to  that  demand,  and  re- 
funded the  money,  and  the  check  was  surrendered  to  him. 
Under  the  authorities,  Zuccaro  is  estopped  to  recover  the 
same  money  from  the  defendant.     *     *     * '  ■ 

Question  557:  (1.)  Could  the  bank  in  this  case  have  been 
held  by  Zuccaro  notwithstanding  the  maker's  attempt  to  stop 
payment  ? 

(2.)  Was  Zuccaro  discharging  a  legal  liability  when  he  paid 
the$500toPoess? 

Sec.  400.    Effect  of  Certification  on  Liability  of  the 

Drawer. 

Case  No.  558.  First  National  Bank  v.  Leach,  52  N.  Y. 
350. 

Facts :    The  facts  are  given  in  the  opinion. 

Point  Involved:  Whether  the  drawer  remains  second- 
arily liable  on  a  check  certified  by  the  bank :  (a)  Where 
certification  is  procured  by  drawer;  (b)  Where  certifica- 
tion is  procured  by  holder. 

Peckham,  J.:  "The  defendant  drew  the  check  in  con- 
troversy, it  was  discounted  by  the  plaintiff,  and  on  the 
day  it  was  due  it  was  presented  by  plaintiff  to  the  drawee, 


NOTES  AND  CHECKS  799 

the  Ocean  Bank,  for  certification,  was  certified  as  good, 
and  in  the  afternoon  of  the  same  day  was  presented  for 
payment,  which  was  refused,  because  between  the  time  of 
its  certificate  and  its  second  presentment  the  drawee,  the 
Ocean  Bank,  had  failed  and  gone  into  the  hands  of  a  re- 
ceiver. Did  this  certification  operate  as  a  payment  of  the 
check  as  between  these  parties? 

1 '  The  theory  of  the  law  is,  that  where  a  check  is  certi- 
fied to  be  good  by  a  bank,  the  amount  thereof  is  then 
charged  to  the  account  of  the  drawer  in  the  bank  certifi- 
cate account.  Every  well  regulated  bank  adopts  this 
practice  to  protect  itself. 

"The  reason  thereof  is  so  strong  that  the  law  pre- 
sumes it  is  adopted  by  the  banks.  (Smith  v.  Miller,  43 
N.  Y.  171;  Meads  v.  the  Merchants'  Bank  of  Albany,  25 
id.  148;  The  Farmers'  &  Mechanics'  Bank  v.  Butchers'  & 
Drovers'  Bank,  16  id.  125;  Merchants'  Bank  v.  State 
Bank,  10  Wall.  647.)  It  is  found  to  have  been  done  in 
this  case. 

"If  a  bank  failed  to  keep  such  account  and  to  make 
such  entries,  it  would  necessarily  incur  the  peril  of  the 
failure  of  its  customers  whose  checks  it  certified,  without 
any  account  of  their  number  or  amount,  although  it  would 
be  liable  to  pay  its  certified  checks  to  bona  fide  holders, 
whether  it  had  funds  or  not.  (Farmers'  &  Mechanics' 
Bank  v.  Butchers'  &  Drovers'  Bank,  supra.) 

"It  follows  that,  after  a  check  is  certified,  the  drawer 
of  the  check  cannot  draw  out  the  funds  then  in  the  bank 
necessary  to  meet  the  certified  check.  That  money  is  no 
longer  his. 

"If  he  apprehended  danger  from  the  suspected  failure 
of  the  bank,  he  could  not  draw  out  that  money,  because 
it  had  already  been  appropriated  by  means  of  the  check 
thus  certified ;  as  to  him,  it  was  precisely  as  if  the  bank 
had  paid  the  money  upon  that  check  instead  of  making  a 
certificate  of  its  being  good. 

"For  that  reason,  the  drawer  could  have  no  remedy 
against  the  bank,  by  any  legal  proceeding,  to  secure  him- 
self for  the  amount  of  that  check.    Hence,  if  the  drawer 


800  NEGOTIABLE  PAPER 

should  get  the  check  back,  he  would  strictly  be  entitled  to 
get  that  money,  not  by  virtue  of  its  original  deposit,  but 
solely  by  surrender  of  the  certified  check,  like  any  other 
holder. 

'  'But  all  that  has  been  yet  stated  applies  with  equal 
force  to  the  acceptance  of  a  time  bill  of  exchange  before 
due.  Then,  when  the  drawee  accepts,  it  is  an  appropria- 
tion of  the  funds,  pro  tanto,  for  the  service  and  use  of 
the  payee  or  other  person  holding  the  bill,  so  that  the 
amount  ceases  henceforth  to  be  the  money  of  the  drawer, 
and  becomes  that  of  the  payee  or  other  holder  in  the 
hands  of  the  acceptor.  (Story  on  Bills  of  Ex.,  §  14;  1 
Pars,  on  Notes  and  Bills,  323.) 

"  It  is  entirely  clear  that  the  acceptance  of  a  time  draft, 
before  due,  does  not  operate  as  a  payment  as  respects  the 
drawer.  Its  only  effect  is  to  make  the  acceptor  the  pri- 
mary party  to  pay  the  draft. 

"But  the  parties  to  a  certified  check,  due  when  certified, 
occupy  a  different  position.  There  the  money  is  due  and 
payable  when  the  check  is  certified.  The  bank  virtually 
says  that  check  is  good ;  we  have  the  money  of  the  drawer 
here  ready  to  pay  it.  We  will  pay  it  now  if  you  will  re- 
ceive it.  The  holder  says  no.  I  will  not  take  the  money ; 
you  may  certify  the  check  and  retain  the  money  for  me 
until  this  check  is  presented. 

"The  law  will  not  permit  a  check,  when  due,  to  be  thus 
presented  and  the  money  to  be  left  with  the  bank  for  the 
accommodation  of  the  holder,  without  discharging  the 
drawer. 

"The  money  being  due  and  the  check  presented,  it  is 
his  own  fault  if  the  holder  declines  to  receive  the  pay, 
and  for  his  own  convenience  has  the  money  appropriated 
to  that  check,  subject  to  its  future  presentment  at  any 
time  within  the  statute  of  limitations. 

"The  acceptance  of  a  time  draft  before  due  is  entirely 
different ;  there  the  holder  has  then  no  right  to  the  money, 
and  the  acceptor  no  authority  to  pay  until  the  maturity 
of  the  bill.  There  is  no  necessity  for  presenting  a  check 
for  acceptance,  like  a  time  bill,  no  authority  for  such  pre- 


NOTES  AND  CHECKS  801 

sentment,  although  the  holder  has  the  right  to  do  it. 
The  authority  and  the  duty  are  to  present  for  payment. 

"If,  however,  the  holder  choose  to  have  it  certified  in- 
stead of  paid,  he  will  do  so  at  the  peril  of  discharging  the 
drawer. 

"He  cannot  change  the  position  and  increase  the  risk 
of  the  drawer  without  discharging  him.  (Smith  v.  Miller, 
supra.) 

1 '  This  would  not  discharge  the  drawer  of  a  check,  who 
himself  procured  it  to  be  certified  and  then  put  it  in  cir- 
culation. The  reason  of  the  rule  fails  to  apply  to  him  in 
such  case. 

1 1 1  am  not  aware  of  any  direct  authority  upon  this  ques- 
tion; but  upon  principle  it  must  be  held  that  the  bank 
holds  the  money,  after  certification  to  the  holder,  not  at 
the  risk  of  the  drawer,  but  of  the  holder  of  the  check. 

"The  judgment  must  be  affirmed. 

"All  concur. — Judgment  affirmed." 

Question  558:  If  a  holder  of  a  check  has  it  certified,  is  the 
drawer  thereby  discharged  even  of  secondary  liability?  What 
if  the  drawer  procures  its  certification? 

Sec.  401.    Check  as  an  Assignment. 

Case  No.  559.  Uniform  Negotiable  Instruments  Act, 
Sec.  125. 

"A  check  of  itself  does  not  operate  as  an  assignment 
of  any  part  of  the  funds  to  the  credit  of  the  drawer  with 
the  bank,  and  the  bank  is  not  liable  to  the  holder,  unless 
and  until  it  accepts  or  certifies  the  checks.' ' 

Question  559:  A  draws  a  check  on  M  bank  to  B's  order.  B 
presents  it  to  the  bank  for  payment.  The  bank  refuses  payment 
although  A  has  on  deposit  sufficient  funds.  B  sues  the  bank. 
What  result?' 


WC>.     '..        *» 


DIVISION  E 


PARTNERSHIPS 


DIVISION    E 
PARTNERSHIPS 

Part  XX.  General  Nature  and  Formation  of  Partner- 
ships. 

Part     XXI.    Firm  Name  and  Property. 

Part  XXII.  Mutual  Rights  and  Obligations  of  Part- 
ners. 

Part  XXIII.  Rights  of  Third  Persons  against  the  Part- 
ners. 

Part  XXIV.    Dissolution  of  the  Partnership. 


PART    XX 

GENERAL  NATURE  AND  FORMATION  OF 
PARTNERSHIPS 

Chapter  Seventy-three.     Partnerships  Defined. 
Chapter  Seventy-four.       The  Formation  of  the  Partner- 
ship. 


805 


CHAPTER    SEVENTY-THREE 
PARTNERSHIPS  DEFINED 

§  402.  A  partnership  an  association,  on,   as    co-owners,   a  busi- 

not  an  entity.  ness  with  a  view  to  profit. 

§  403.  Of  parties  on  a  personal  basis.  §  405.  Partnership  by  estoppel. 

§  404.  For  the  purpose  of  carrying  §  406.  Kinds  of  partnerships. 

Sec.  402.    A  Partnership  an  Association,  Not  an  Entity. 

Case  No.  560.  E.  J.  Dupont  Demours  Powder  Co.  v. 
Jones  Bros,  et  al.,  200  Fed.  638. 

Facts:  A  partnership  was  composed  of  two  partners, 
and  had  its  place  of  business  in  the  county  where  one  of 
the  partners  resided,  but  the  other  partner  resided  in 
another  county.  The  Ohio  law  provided  that  a  condi- 
tional sale  contract  to  be  valid  against  bona  fide  pur- 
chasers and  mortgagors  shall  be  filed  with  the  county 
recorder  of  the  county  where  the  party  signing  the  in- 
strument resides.  The  conditional  sale  in  question  was 
signed  in  the  partnership  name  by  one  of  the  partners, 
and  recorded  in  the  county  where  the  partnership  busi- 
ness was  carried  on,  but  not  in  the  other  county.  It  is 
contended  that  under  this  statute  and  a  statute  permitting 
a  partnership  to  sue  and  be  sued  in  the  firm  name — a 
partnership  is  made  an  entity,  and  that  filing  the  con- 
tract in  the  place  of  business  of  the  partnership  is  filing 
it  in  accordance  with  the  law. 

Point  Involved:  The  nature  of  a  partnership  as  an 
entity  or  a  relationship  between  parties. 

806 


PARTNERSHIPS  DEFINED  807 

Sater,  D.  J. :  "*  *  *  As  regards  the  doctrine  of 
partnership  entity,  it  may  be  observed  that  one  concep- 
tion of  a  partnership,  arising  out  of  the  agreement  on 
which  it  is  founded,  is  that  it  is  an  aggregation  of  per- 
sons associated  together  to  share  its  profits  and  losses, 
owning  its  property  and  liable  for  its  debts.  Another 
conception  is  that  it  is  an  artificial  being,  a  distinct  entity, 
separate  in  estate,  in  rights,  and  in  obligations,  from  the 
partners  who  compose  it.  Re  Bertenshaw,  157  ed.  363, 
365,  85  C.  C.  A.  61,  17  L.  R.  A.  (N.  S.)  886,  13  Ann.  Cas. 
986.  The  intervener  adopts  the  latter  conception,  and 
relies  on  Curtis  v.  Hollingshead,  14  N.  J.  Law,  402,  409, 
410,  Pooley  v.  Driver,  L.  R.  5  Ch.  D.  458,  and  Parsons 
on  Partnership  (4th  Ed.)  §  184,  to  which  may  be  added 
the  discussion  in  Bates  on  Partnership,  c.  8,  §  170  et  seq., 
and  authorities  cited  in  Re  Telfer,  184  Fed.  224,  106  C. 
C.  A.  366  (C.  C.  A.  6).  In  West  v.  Valley  Bank,  6  Ohio 
St.  168,  173,  a  firm  is  characterized  as  an  ideal  mercan- 
tile person.  This  is  the  mercantile  conception  of  a  part- 
nership. Gilmore,  Part.  114  et  seq.  The  legal  concep- 
tion, however,  is  quite  different.  Gilmore,  Part.  117; 
Bates,  Part.  §  170.  In  Byers  v.  Schlupe,  51  Ohio  St.  314, 
38  N.  E.  page  121,  25  L.  R.  A.  649,  the  attitude  of  a  part- 
nership in  the  eye  of  the  law,  as  viewed  by  the  Ohio 
Court,  is  stated  thus : 

"  'The  members  of  a  partnership  do  not  form  a  col- 
lective whole,  distinct  from  the  individuals  composing 
it;  nor  are  they  collectively  endowed  with  any  capacity 
of  acquiring  rights  or  incurring  obligations.  The  rights 
and  liabilities  of  a  partnership  are  the  rights  and  lia- 
bilities of  the  partners.  1  Lind.  Part.  5.  It  is  not  a 
creation  in  which  the  identity  of  the  individual  members 
is  merged  and  lost,  in  seeking  to  enforce  against  them 
the  obligations  of  the  firm.' 

"The  doctrine  of  partnership  entity,  in  the  sense  that 
a  partnership  is  an  ideal  artificial  person  or  being  dis- 
tinct from  the  individuals  composing  it,  and  in  which  the 
identity  of  the  individual  members  is  merged  and  lost, 
does  not  obtain  in  Ohio.    Nor  does  the  judicial  recogni- 


808  PARTNERSHIPS 

tion  of  the  doctrine  of  partnership  entity  change  the 
established  rule  fixing  the  substantive  rights  either  of 
the  creditors  of  the  partnership  or  of  its  individual  mem- 
bers. Ee  Telfer,  184  Fed.  230,  106  C.  C.  A.  366.  The 
partnership  entity,  after  the  enactment  of  the  remedial 
statute  permitting  it  to  sue  or  be  sued  in  the  firm  name, 
remained  precisely  the  same  as  that  prior  to  its  passage, 
plus  the  remedial  right  thereby  conferred.  Such  enact- 
ment does  not  affect  the  application  of  the  statutory 
requirement  that  a  chattel  mortgage  shall  be  filed  with 
the  recorder  of  the  county  where  the  mortgagor  resides- 
at  the  time  of  its  execution.  The  same  rule  consequently 
applies  as  to  the  filing  of  such  an  instrument  in  Ohio  as 
in  those  states  in  which  the  common-law  rule  is  in  force 
— the  rule  that  actions  affecting  partnerships  must  be 
brought  in  the  name  of  or  against  the  individuals  com- 
posing the  same." 

Question  560:  Is  the  partnership  an  entity?  How  did  the 
question  come  to  be  raised  in  this  case  and  how  did  the  Court 
decide  ? 

(Note:  How  partnership  differs  from  corporation:  In  the 
fact  that  a  partnership  is  not  a  legal  entity,  but  a  relationship, 
that  the  liability  of  the  partners  is  not  limited,  that  the  shares 
of  the  partnership  are  not  transferrable,  that  each  partner  is  an 
agent  of  the  firm,  while  stockholders  are  not  the  agents  of  the 
corporation,  that  a  partnership  must  be  for  profit,  a  partnership 
differs  essentially  from  a  corporation.) 

Sec.  403.  Partnership  an  Association  on  a  Personal  Basis. 

(Note:  All  through  the  law  of  partnership  we  find  it  empha- 
sized with  many  results,  that  a  partnership  is  an  agreement  of  a 
strictly  personal  nature.  This  thought  is  expressed  in  the  Latin 
phrase  "delectus  personae."  As  a  consequence,  no  member  can 
without  permission  sell  his  share  to  either  an  outside  person  or  to 
one  of  the  other  partners.  A  may  be  willing  to  be  a  partner  with 
B  and  C,  but  not  with  B  and  D,  or  with  B  alone.  So,  death  of  a 
partner,  dissolves  the  firm.     So,  the  partner  may  demand  the 


PARTNERSHIPS  DEFINED  809 

highest  good  faith  on  the  part  of  his  co-partner.    These  matters 
are  exemplified  in  the  following  pages,  throughout  this  subject.) 

Sec.  404.  A  Partnership  Is  a  Relationship  Formed  for 
the  Purpose  of  Carrying  on  a  Business  in  Co-ownership 
with  a  View  to  Profit. 

Case  No.  561.    Meehan  v.  Valentine,  145  U.  S.  611. 

Facts:  Suit  by  Thomas  J.  Meehan,  against  Valentine 
as  executor  of  Perry,  alleging  Perry  to  have  been  a 
partner  with  Counselman  and  Scott,  under  the  firm  name 
of  L.  W.  Counselman  &  Co.,  and  seeking  to  charge 
Perry's  estate  on  promissory  notes  signed  by  the  firm. 

The  plaintiff  put  in  evidence  the  following  agreement : 

"L.  W.  Counselman,  Albert  L.  Scott,  Office  of  L.  W. 
Counselman  &  Co.,  Oyster  and  Fruit  Packers,  corner 
Philpot  and  Will  streets,  Baltimore,  Md.,  March  15, 1880. 
For  and  in  consideration  of  loans  made  and  to  be  made 
to  us  by  Wm.  G.  Perry,  of  Philadelphia,  amounting  in 
all  to  the  sum  of  $10,000,  for  the  term  of  one  year  from 
the  date  of  said  loans,  we  agree  to  pay  to  said  Wm.  G. 
Perry  in  addition  to  the  interest  thereon,  one-tenth  of 
the  net  profits  over  and  above  the  sum  of  $10,000  on 
our  business  for  the  year  commencing  May  1,  1880,  and 
ending  May  1,  1881 — i.  e.,  if  our  net  profits  for  said 
year's  business  exceeds  the  sum  of  ten  thousand  dol- 
lars, then  we  are  to  pay  to  said  W.  G.  Perry  one-tenth 
of  said  excess  of  profits  over  and  above  the  said  sum  of 
ten  thousand  dollars;  and  it  is  further  agreed  that  if 
our  net  profits  do  not  exceed  the  sum  of  ten  thous'and 
dollars,  then  he  is  not  to  be  paid  more  than  the  interest 
on  said  loan,  the  same  being  added  to  notes  at  the  time 
they  are  given,  which  are  to  date  from  the  time  of  said 
loans,  and  payable  one  year  from  date.  L.  W.  Counsel- 
man  &  Co."  This  agreement  was  continued  for  future 
years. 

"The  plaintiff  also  offered  in  evidence  six  promissory 
notes,  amounting  to  $10,600,  given  by  the  firm  to  Perry 
in  the  months  of  March,  May,  and  June,  1884. 


810  PARTNERSHIPS 

"The  plaintiff  also  called  Scott  as  a  witness,  who  testi- 
fied that  the  firm  was  composed  of  L.  W.  Counselman 
and  himself;  who  carried  on  a  fruit,  vegetable  packing 
and  oyster  business  in  Baltimore ;  that  Perry  was  in  the 
stationery  business  in  Philadelphia;  that  the  $10,000 
mentioned  in  the  agreement  was  paid  by  him  to  the  firm, 
receiving  their  notes  for  it,  and  remained  in  the  business 
throughout,  no  part  of  it  having  been  repaid;  that  from 
time  to  time  he  lent  other  sums  to  the  firm,  which  were 
repaid;  that  he  was  an  intimate  friend  of  the  witness, 
and  visited  him  every  few  weeks,  such  visits  not  being 
specially  connected  with  the  business,  but  business  was 
always  talked  on  such  occasions  and  the  place  of  busi- 
ness visited;  that  Perry  annually  received  accounts  of 
profits  and  loss.  After  a  showing  that  the  firm  had  made 
an  assignment  for  benefit  of  creditors,  these  questions 
and  answers  were  made: 

"Question :  Mr.  Counselman  and  yourself  did  owe  this 
$10,000  to  the  estate  of  Mr.  Perry,  did  you?  Answer: 
They  had  my  notes  for  it. 

"Q.  Did  you  or  did  you  not  owe  it?  A.  It  was  capi- 
tal he  had  in  the  business  the  same  as  ours.  We  owed  it 
to  him,  of  course  we  owed  it  to  him,  if  we  did  not  lose  it. ' ' 

The  Court  below  held  that  there  was  no  evidence  to 
show  that  Perry  was  liable  on  such  notes  as  a  partner 
and  ordered  a  non-suit.  Plaintiff  brings  the  case  to  this 
Court. 

Mr.  Justice  Gray:    "*     *     * 

"The  requisites  of  a  partnership  are  that  the  parties 
must  have  joined  together  to  carry  on  a  trade  or  ad- 
venture for  their  common  benefit,  each  contributing 
property  or  services,  and  having  a  community  of  inter- 
est in  the  profits.    Ward  v.  Thompson,  22  How.  330,  334. 

"Some  of  the  principles  applicable  to  the  question  of 
the  liability  of  a  partner  to  third  persons  were  stated  by 
Chief  Justice  Marshall  in  a  general  way,  as  follows: 
1  The  power  of  an  agent  is  limited  by  the  authority  given 
him ;  and,  if  he  transcends  that  authority,  the  act  cannot 


PARTNERSHIPS  DEFINED  811 

affect  his  principal;  he  acts  no  longer  as  an  agent.  The 
same  principle  applies  to  partners.  One  binds  the  others 
so  far  only  as  he  is  the  agent  of  the  others.'  'A  man  who 
shares  in  the  profit,  although  his  name  may  not  be  in  the 
firm,  is  responsible  for  all  its  debts. '  'Stipulations  [re- 
stricting the  powers  of  partners]  may  bind  the  partners, 
but  ought  not  to  affect  those  to  whom  they  are  unknown, 
and  who  trust  to  the  general  and  well-established  com- 
mercial law. '  Winship  v.  Bank,  5  Pet.  529,  561, 562.  And 
the  chief  justice  referred  to  Waugh  v.  Carver,  2  H.  Bl. 
235,  ante;  Ex  parte  Hamper,  17  Ves.  403,  412 ;  and  Gow. 
Partn.  17. 

' '  How  far  sharing  in  the  profits  of  a  partnership  shall 
make  one  liable  as  a  partner  has  been  a  subject  of  much 
judicial  discussion,  and  the  various  definitions  have  been 
approximate  rather  than  exhaustive. 

"The  rule  formerly  laid  down  and  long  acted  on  as 
established,  was  that  a  man  who  received  a  certain  share 
of  the  profits  as  profits,  with  a  lien  on  the  whole  profits 
as  security  for  his  share,  was  liable  as  a  partner  for  the 
debts  of  the  partnership,  even  if  it  had  been  stipulated 
between  him  and  his  co-partners  that  he  should  not  be 
so  liable;  but  that  merely  receiving  compensation  for 
labor  or  services,  estimated  by  a  certain  proportion  of 
the  profits,  did  not  render  one  liable  as  a  partner.    *    *    * 

"Accordingly,  this  Court,  at  December  term,  1860,  de- 
cided that  a  person  employed  to  sell  goods  under  an 
agreement  that  he  should  receive  half  the  profits,  and 
that  they  should  not  be  less  than  a  certain  sum,  was  not 
a  partner  with  his  employer.  'Actual  participation  in 
the  profits  as  principal, '  said  Mr.  Justice  Clifford  in  de- 
livering judgment,  '  creates  a  partnership  as  between  the 
parties  and  third  persons,  whatever  may  be  their  inten- 
tions in  that  behalf,  and  notwithstanding  the  dormant 
partner  was  not  expected  to  participate  in  the  loss  be- 
yond the  amount  of  the  profits,'  or  'may  have  expressly 
stipulated  with  his  associates  against  all  the  usual  inci- 
dents to  that  relation.  That  rule,  however,  has  no  appli- 
cation whatever  to  a  case  of  service  or  special  agency, 


812  PARTNERSHIPS 

where  the  employe  has  no  power  as  a  partner  in  the  firm 
and  no  interest  in  the  profits,  as  property,  but  is  simply 
employed  as  a  servant  or  special  agent,  and  is  to  receive 
a  given  sum  out  of  the  profits,  or  a  proportion  of  the 
same,  as  a  compensation  for  his  services. '  Berthold  v. 
Goldsmith,  24  How.  536,  542,  543.  See,  also,  Seymour  v. 
Freer,  8  Wall.  202,  215,  222,  226;  Beckwith  v.  Talbot,  95 
U.  S.  289,  293 ;  Edwards  v.  Tracy,  62  Pa.  St.  374;  Burnett 
v.  Snyder,  81  N.  Y.  550,  555. 

"Mr.  Justice  Story,  at  the  beginning  of  his  Commen- 
taries on  Partnership,  first  published  in  1841,  said: 
'Every  partner  is  an  agent  of  the  partnership;  and  his 
rights,  powers,  duties,  and  obligations  are  in  many  re- 
spects governed  by  the  same  rules  and  principles  as  those 
of  an  agent.  A  partner,  indeed,  virtually  embraces  the 
character  both  of  a  principal  and  of  an  agent.  So  far  as 
he  acts  for  himself  and  his  own  interest  in  the  common 
concerns  of  the  partnership,  he  may  properly  be  deemed 
a  principal;  and  so  far  as  he  acts  for  his  partners,  he 
may  as  properly  be  deemed  an  agent.  The  principal  dis- 
tinction between  him  and  a  mere  agent  is  that  he  has  a 
community  of  interest  with  the  other  partners  in  the 
whole  property  and  business  and  responsibilities  of  the 
partnership;  whereas  an  agent,  as  such,  has  no  interest 
in  either.  Pothier  considers  partnership  as  but  a  species 
of  mandate,  saying  contractus  societatis,  non  secus  ac 
contractus  mandati.'  Afterwards,  in  discussing  the  rea- 
sons and  limits  of  the  rule  by  which  one  may  be  charged 
as  a  partner  by  reason  of  having  received  part  of  the 
profits  of  the  partnership,  Mr.  Justice  Story  observed 
that  the  rule  was  justified  and  the  cases  in  which  it  had 
been  applied  reconciled,  by  considering  that  l&  partici- 
pation in  the  profits  will  ordinarily  establish  the  exist- 
ence of  a  partnership  between  the  parties  in  favor  of 
third  persons,  in  the  absence  of  all  other  opposing  cir- 
cumstances;' but  that  it  is  not  Ho  be  regarded  as  any- 
thing more  than  mere  presumptive  proof  thereof,  and 
therefore  liable  to  be  repelled  and  overcome  by  other  cir- 
cumstances, and  not  as  of  itself  overcoming  or  controlling 


PARTNERSHIPS  DEFINED  813 

them;'  and  therefore  that,  'if  the  participation  in  the 
profits  can  be  clearly  shown  to  be  in  the  character  of 
agent,  then  the  presumption  of  partnership  is  repelled. ' 
And  again :  'The  true  rule,  ex  cequo  et  bono,  would  seem 
to  be  that  the  agreement  and  intention  of  the  parties 
themselves  should  govern  all  the  cases.  If  they  intended 
a  partnership  in  the  capital  stock,  or  in  the  profits,  or  in 
both,  then  that  the  same  rule  should  apply  in  favor  of 
third  persons,  even  if  the  agreement  were  unknown  to 
them.  And  on  the  other  hand,  if  no  such  partnership 
were  intended  between  the  parties,  then  that  there  should 
be  none  as  to  third  persons,  unless  where  the  parties  had 
held  themselves  out  as  partners  to  the  public,  or  their 
conduct  operated  as  a  fraud  or  deceit  upon  third  per- 
sons.'   Story,  Partn.  §§  1,  38,  49. 

"Baron  Parke  (afterwards  Lord  Wensleydale)  ap- 
pears to  have  taken  much  the  same  view  of  the  subject  as 
Mr.  Justice  Story.  Both  in  the  Court  of  Exchequer  and 
in  the  House  of  Lords  he  was  wont  to  treat  the  liability 
of  one  sought  to  be  charged  as  a  dormant  partner  for 
the  acts  of  the  active  partners  as  depending  on  the  law 
of  principal  and  agent.  Beckham  v.  Drake  (1841),  9 
Mees.  &  W.  79,  98;  Wilson  v.  Whitehead  (1842),  10  Mees. 
&  W.  503,  504;  Ernest  v.  Nicholls  (1857),  6  H.  L.  Cas. 
401,  417;  Cox  v.  Hickman  (1860),  8  H.  L.  Cas.  268,  312, 
ante.  And  in  Cox  v.  Hickman  he  quoted  the  statements 
of  Story  and  Pothier  from  Story,  Partn.  §  1,  above  cited. 

"In  that  case,  two  merchants  and  co-partners,  becom- 
ing embarrassed  in  their  circumstances,  assigned  all 
their  property  to  trustees,  empowering  them  to  carry  on 
the  business,  and  to  divide  the  net  income  ratably  among 
their  creditors  (all  of  whom  became  parties  to  the  deed), 
and  to  pay  any  residue  to  the  debtors,  the  majority  of 
the  creditors  being  authorized  to  make  rules  for  con- 
ducting the  business  or  to  put  an  end  to  it  altogether. 
The  house  of  lords,  differing  from  the  majority  of  the 
judges  who  delivered  opinions  at  various  stages  of  the 
case,  held  that  the  creditors  were  not  liable  as  partners 
for  debts  incurred  by  the  trustees  in  carrying  on  the 


814  ■  PARTNERSHIPS 

business  under  the  assignment.  The  decision  was  put 
upon  the  ground  that  the  liability  of  one  partner  for  the 
acts  of  his  co-partner  is  in  truth  the  liability  of  a  prin- 
cipal for  the  acts  of  his  agent ;  that  a  right  to  participate 
in  the  profits,  though  cogent,  is  not  conclusive,  evidence 
that  the  business  is  carried  on  in  part  for  the  person 
receiving  them;  and  that  the  test  of  his  liability  as  a 
partner  is  whether  he  has  authorized  the  managers  of 
the  business  to  carry  it  on  in  his  behalf.  Cox  v.  Hick- 
man, 8  H.  L.  Cas.  268,  304,  306,  312,  313,  nom.  Wheat- 
croft  v.  Hickman,  9  C.  B.  (N.  S.)  47,  90,  92,  98,  99. 

"This  new  form  of  stating  the  general  rule  did  not  at 
first  prove  easier  of  application  than  the  old  one ;  for  in 
the  first  case  which  arose  afterwards  one  judge  of  three 
dissented  (Kilshaw  v.  Jukes,  3  Best  &  S.  847),  and  in 
the  next  case  the  unanimous  judgment  of  four  judges  in 
the  common  bench  was  reversed  by  four  judges  against 
two  in  the  exchequer  chamber  (Bullen  v.  Sharp,  18  C. 
B.  [N.  S.]  614,  and  L.  R.  1  C.  P.  86).  And,  as  has  been 
pointed  out  in  later  English  cases,  the  reference  to  agency 
as  a  test  of  partnership  was  unfortunate  and  inconclu- 
sive, inasmuch  as  agency  results  from  partnership 
rather  than  partnership  from  agency.  Kelly,  C.  B.,  and 
Cleasby,  B.,  in  Holme  v.  Hammond,  L.  R.  7  Exeh.  218, 
227,  233;  Jessel,  M.  R.,  in  Pooley  v.  Driver,  5  Ch.  Div. 
458,  476.  Such  a  test  seems  to  give  a  synonym,  rather 
than  a  definition ;  another  name  for  the  conclusion,  rather 
than  a  statement  of  the  premises  from  which  the  conclu- 
sion is  to  be  drawn.  To  say  that  a  person  is  liable  as  a 
partner,  who  stands  in  the  relation  of  principal  to  those 
by  whom  the  business  is  actually  carried  on,  adds  noth- 
ing by  way  of  precision,  for  the  very  idea  of  partnership 
includes  the  relation  of  principal  and  agent.     *     *     * 

"In  other  respects,  however,  the  rule  laid  down  in  Cox 
v.  Hickman  has  been  unhesitatingly  accepted  in  England, 
as  explaining  and  modifying  the  earlier  rule.  In  re  Eng- 
lish &  Irish  Society,  1  Hem.  &  M.  85, 106,  107;  Mollwo  v. 
Court  of  Wards,  L.  R.  4  P.  C.  419,  435 ;  Ross  v.  Parkyns, 
L.  R.  20  Eq.  331,  335;  Ex  parte  Tennant,  6  Ch.  Div.  303.; 


PARTNERSHIPS  DEFINED  815 

Ex  parte  Delhasse,  7  Ch.  Div.  511 ;  Badeley  v.  Bank,  38 
Ch.  Div.  238.  See,  also,  Davis  v.  Patrick,  122  U.  S.  138, 
151,  7  Sup.  Ct.  Kep.  1102;  Eastman  v.  Clark,  53  N.  H. 
276,  16  Am.  Rep.  192;  Wild  v.  Davenport,  48  N.  J.  Law, 
129,  7  Atl.  Rep.  295,  57  Am.  Rep.  552;  Seabury  v.  Bolles, 
51  N.  J.  Law,  103, 16  Atl.  Rep.  54,  and  52  N.  J.  Law,  413, 
21  Atl.  Rep.  952;  Morgan  v.  Farrell,  58  Conn.  413,  20 
Atl.  Rep.  614. 

"In  the  present  state  of  the  law  upon  this  subject,  it 
may,  perhaps,  be  doubted  whether  any  more  precise  gen- 
eral rule  can  be  laid  down  than,  as  indicated  at  the  be- 
ginning of  this  opinion,  that  those  persons  are  partners 
who  contribute  either  property  or  money  to  carry  on  a 
joint  business  for  their  common  benefit,  and  who  own 
and  share  the  profits  thereof  in  certain  proportions.  If 
they  do  this,  the  incidents  or  consequences  follow  that 
the  acts  of  one  in  conducting  the  partnership  business 
are  the  acts  of  all ;  that  each  is  agent  for  the  firm  and  for 
the  other  partners ;  that  each  receives  part  of  the  profits 
as  profits,  and  takes  part  of  the  fund  to  which  the 
creditors  of  the  partnership  have  a  right  to  look  for  the 
payment  of  their  debts;  that  all  are  liable  as  partners 
upon  contracts  made  by  any  of  them  with  third  persons 
within  the  scope  of  the  partnership  business;  and  that 
even  an  express  stipulation  between  them  that  one  shall 
not  be  so  liable,  though  good  between  themselves,  is  in- 
effectual as  against  third  persons.  And  participating 
in  profits  is  presumptive,  but  not  conclusive,  evidence  of 
partnership. 

"In  whatever  form  the  rule  is  expressed,  it  is  univer- 
sally held  that  an  agent  or  servant,  whose  compensation 
is  measured  by  a  certain  proportion  of  the  profits  of  the 
partnership  business,  is  not  thereby  made  a  partner,  in 
any  sense.  So  an  agreement  that  the  lessor  of  a  hotel 
shall  receive  a  certain  portion  of  the  profits  thereof  by 
way  of  rent  does  not  make  him  a  partner  with  the  lessee. 
Perrine  v.  Hankinson,  11  N.  J.  Law,  215 ;  Holmes  v.  Rail- 
road Co.,  5  Gray,  58;  Beecher  v.  Bush,  45  Mich.  188,  7 
N.  W.  Rep.  785,  ante.    And  it  is  now  equally  well  settled 


816  PARTNERSHIPS 

that  the  receiving  of  part  of  the  profits  of  a  commercial 
partnership,  in  lieu  of  or  in  addition  to  interest  by  way 
of  compensation  for  a  loan  of  money,  has  of  itself  no 
greater  effect.  Wilson  v.  Edmonds,  130  U.  S.  472,  482, 
9  Sup.  Ct.  Rep.  563;  Richardson  v.  Hughitt,  76  N.  Y.  55, 
32  Am.  Rep.  267;  Curry  v.  Fowler,  87  N.  Y.  33,  41  Am. 
Rep.  343 ;  Cassidy  v.  Hall,  97  N.  Y.  159 ;  Smith  v.  Knight, 
71  111.  148,  22  Am.  Rep.  94;  Williams  v.  Soutter,  7  Iowa 
435,  446;  Smelting  Co.  v.  Smith,  13  R.  I.  27,  43  Am.  Rep. 
3 ;  Mollwo  v.  Court  of  Wards,  and  Badeley  v.  Bank,  above 
cited. 

"In  some  of  the  cases  most  relied  on  by  the  plaintiff, 
the  person  held  liable  as  a  partner  furnished  the  whole 
capital  on  which  the  business  was  carried  on  by  another, 
or  else  contributed  part  of  the  capital  and  took  an  active 
part  in  the  management  of  the  business.  Beauregard  v. 
Case,  91  U.  S.  134;  Hackett  v.  Stanley,  115  N.  Y.  625,  627, 
628,  633,  22  N.  E.  Rep.  745;  Pratt  v.  Langdon,  12  Allen, 
544,  and  97  Mass.  97,  93  Am.  Dec.  61 ;  Rowland  v.  Long, 
45  Md.  439.  And  in  Mollwo  v.  Court  of  Wards,  above 
cited,  after  speaking  of  a  contract  of  loan  and  security, 
in  which  no  partnership  was  intended,  it  was  justly  ob- 
served :  'If  cases  should  occur  where  any  persons,  under 
the  guise  of  such  an  arrangement,  are  really  trading  as 
principals,  and  putting  forward,  as  ostensible  traders, 
others  who  are  really  their  agents,  they  must  not  hope 
by  such  devices  to  escape  liability ;  for  the  law,  in  cases 
of  this  kind,  will  look  at  the  body  and  substance  of  the 
arrangements,  and  fasten  responsibility  on  the  parties 
according  to  their  true  and  real  character.'  L.  R.  4  P. 
C.  438.    But  in  the  case  at  bar  no  such  element  is  found. 

' '  Throughout  the  original  agreement,  and  the  renewals 
thereof,  the  sum  of  $10,000  paid  by  Perry  to  the  partner- 
ship, and  for  which  they  gave  him  their  promissory  notes, 
is  spoken  of  as  a  loan  for  which  the  partnership  was  to 
pay  him  legal  interest  at  all  events,  and  also  pay  him 
one-tenth  of  the  net  yearly  profits  of  the  partnership 
business,  if  those  profits  should  exceed  the  sum  of  $10,000. 
The  manifest  intention  of  the  parties,  as  apparent  upon 


PARTNERSHIPS  DEFINED  817 

the  face  of  the  agreement,  was  to  create  the  relation  of 
debtor  and  creditor,  and  not  that  of  partners.  Perry's 
demanding  and  receiving  accounts  and  payments  yearly 
was  in  accordance  with  his  right  as  a  creditor.  There  is 
nothing  in  the  agreement  itself,  or  in  the  conduct  of  the 
parties,  to  show  that  he  assumed  any  other  relation.  He 
never  exercised  any  control  over  the  business.  The  legal 
effect  of  the  instrument  could  not  be  controlled  by  the 
testimony  of  one  of  the  partners  to  his  opinion  that  'it 
was  capital  he  had  in  the  business  the  same  as  ours ;  we 
owed  it  to  him;  of  course,  we  owed  it  to  him  if  we  did 
not  lose  it. ' 

"Upon  the  whole  evidence,  a  jury  would  not  be  justi- 
fied in  inferring,  on  the  part  of  Perry,  either  'actual 
participation  in  the  profits  as  principal,'  within  the  rule 
as  laid  down  by  this  Court  in  Berthold  v.  Goldsmith,  or 
that  he  authorized  the  business  to  be  carried  on  in  part 
for  him  or  on  his  behalf,  within  the  rule  as  stated  in  Cox 
v.  Hickman  and  the  later  English  cases.  There  being  no 
partnership,  in  any  sense,  and  Perry  never  having  held 
himself  out  as  a  partner  to  the  plaintiff  or  to  those  under 
whom  he  claimed,  the  Circuit  Court  rightly  ruled  that 
the  action  could  not  be  maintained.  Pleasants  v.  Fant, 
22  Wall.  116;  Thompson  v.  Bank,  111  U.  S.  529,  4  Sup. 
Ct.  Rep.  689. — Judgment  affirmed." 

Question  561:  (1.)  Is  the  fact  that  the  parties  share  the 
profits  of  a  business  conclusive  to  establish  them  partners  so  that 
the  act  of  one  in  the  scope  of  the  business  will  bind  the  others? 

(2.)     What  was  the  early  test  of  a  partnership  ? 

(3.)     Is  the  agency  test  a  good  test?    Why? 

(4.)     In  the  above  case,  was  Perry  held  as  partner? 

(5.)     What  is  the  test  of  a  partnership  ? 

(6.)  If  there  is  a  partnership  are  all  members  liable  on  part- 
nership transactions,  whether  the  creditor  knew  of  the  partner- 
ship or  not? 

(7.)  A  had  a  farm  which  he  wanted  worked  and  entered  into 
an  agreement  with  B  that  B  should  take  possession  and  operate 
the  farm  for  a  certain  season,  B  to  furnish  his  own  utensils,  and 
A  to  have  in  lieu  of  a  fixed  rental  one-third  of  the  net  profits  of 


818  PARTNERSHIPS 

the  season.    Is  there  a  partnership!    (Randall  v.  Ditch  et  al,  123 
la.  582.) 

(8.)  A  had  a  store  for  which  he  desired  a  manager.  He 
employed  B,  giving  B  authority  to  conduct  the  store,  sell  goods 
and  replenish  the  stock.  B  conducted  the  store,  buying  goods 
in  A's  name.  B 's  compensation  consisted  entirely  in  a  percentage 
of  the  profits.  A  failed.  B  is  sued  as  a  partner  for  goods  bought 
for  the  store.    Is  he  liable  ?    Why  ? 

(Note:  It  was  laid  down  by  the  early  English  cases  that  "He 
who  takes  a  moity  of  all  the  profits  indefinitely  shall,  by  operation 
of  law,  be  liable  for  losses,  if  losses  arise."  "Waugh  v.  Carver, 
2  H.  Blackstone,  235 ;  Grace  v.  Smith,  2  W.  Blackstone,  998.  In 
Cox'v.  Hickman,  8  House  of  Lord's  Cases,  268,  decided  in  1860, 
this  doctrine  was  declared  unsound.  Different  tests  have  been 
proposed,  but  the  better  view  is  that  there  is  a  partnership  (no 
matter  what  name  the  parties  give  to  the  relationship)  when 
there  is  an  intention  to  make  each  other  co-owners  in  a  business 
conducted  with  a  view  to  profit.  There  may  be  a  mutual  interest 
in  the  profits  without  any  co-ownership  in  the  business.  Being 
mutual  owners,  and  therefore  all  principals,  each  is  an  agent  for 
the  other.  If  parties  are  actually  partners,  they  are  liable 
whether  at  the  time  known  to  be  so  or  not.  Thus  a  secret  part- 
ner is  liable  for  partnership  indebtedness  incurred  while  he  was 
actually  a  partner.  If  parties  are  interested  in  the  profits,  but 
not  actually  partners,  they  are  not  liable,  unless  there  was  a 
' '  holding  out, ' '  that  is  unless  the  party  is  by  his  representations 
or  conduct  estopped  to  say  there  is  no  partnership.  For  exhaust- 
ive note  entitled  ' '  Effect  of  agreement  to  share  profits  to  create  a 
partnership,"  see  18  Lawyers  Report  Annotated,  new  series,  963.) 

Case  No.  562.    Ash  v.  Guie,  97  Pa.  493. 

Facts:  Suit  brought  against  a  large  number  of  per- 
sons as  members  of  a  Masonic  lodge  upon  a  certificate  of 
indebtedness  which  had  been  issued  by  the  master  and 
the  warden  upon  an  indebtedness  arising  out  of  the  erec- 
tion of  a  building.  These  members  were  sought  to  be 
held  responsible  as  partners. 

Point  Involved:  Whether  the  members  of  a  benevo- 
lent order,  not  formed  for  financial  profit,  are  partners 
and  as  such  agents  of  each  other  within  the  scope  of 
partnership  purposes. 


PARTNERSHIPS  DEFINED  819 

Tkunkey,  J. :  M  One  of  the  defendants,  called  by  plain- 
tiffs, testified :  '  The  full  title  of  our  lodge  is  Williamson 
Lodge,  No.  309,  F.  and  A.  M.  F.  and  A.  M.  means  Free 
and  Accepted  Masons.  The  purposes  of  our  lodge  are 
charitable,  benevolent  and  social.'  This  is  the  evidence 
as  to  the  objects  for  which  the  association  was  formed, 
and  without  proof  of  its  constitution  or  rules  respecting 
admission  of  members  and  the  management  of  its  affairs, 
it  was  held  to  be  a  common  partnership.  A  partnership 
has  been  defined  to  be  a  'combination  by  two  or  more 
persons,  of  capital  or  labor  or  skill,  for  the  purpose  of 
business  for  their  common  benefit.'  It  may  be  formed, 
not  only  for  every  kind  of  commercial  business,  but  for 
manufacturing,  hunting,  and  the  like,  as  well  as  for 
carrying  on  the  business  of  professional  men,  mechanics, 
laborers,  and  almost  all  other  employments.  It  would 
seem  that  there  must  be  a  community  of  interests  for 
business  purposes.  Hence  voluntary  associations  or 
clubs,  for  social  and  charitable  purposes,  and  the  like, 
are  not  proper  partnerships,  nor  have  their  members 
the  powers  and  responsibilities  of  partners.  Pars,  on 
Part.  6,  36,  42. 

"A  benevolent  and  social  society  has  rarely,  if  ever, 
been  considered  a  partnership.     *     *     * 

"Here  there  is  no  evidence  to  warrant  an  inference 
that  when  a  person  joined  the  lodge  he  bound  himself  as 
a  partner  in  the  business  of  purchasing  real  estate  and 
erecting  buildings,  or  as  a  partner  so  that  other  members 
could  borrow  money  on  his  credit.  The  proof  fails  to 
show  that  the  officers  or  a  committee,  or  any  number  of 
the  members,  had  a  right  to  contract  debts  for  the  build- 
ing of  a  temple,  which  would  be  valid  against  every  mem- 
ber from  the  mere  fact  that  he  was  a  member  of  the  lodge. 
But  those  who  engaged  in  the  enterprise  are  liable  for 
the  debts  they  contracted,  and  all  are  included  in  such 
liability  who  assented  to  the  undertaking  or  subsequently 
ratified  it.  Those  who  participated  in  the  erection  of  the 
building  by  voting  for  and  advising  it,  are  bound  the 
same  as  the  committee  who  had  it  in  charge.    And  so 


820  PARTNERSHIPS 

with  reference  to  borrowing  money.  A  member  who  sub- 
sequently approved  the  erection  or  borrowing  could  be 
held  on  the  ground  of  ratification  of  the  agents'  acts. 
We  are  of  opinion  that  it  was  error  to  rule  that  all  the 
members  were  liable  as  partners  in  their  relation  to  third 
persons  in  the  same  manner  as  individuals  associated  for 
the  purpose  of  carrying  on  a  trade.     *     *     •  M 

Question  562:  (1.)  Why  was  the  lodge  not  deemed  to  be  a 
partnership  ? 

(2.)  How  could  the  members  of  this  club  have  made  them- 
selves liable  for  the  acts  of  other  members  ? 

(Note:  A  provision  by  one  co-owner  indemnifying  the  other 
against  loss  does  not  prevent  a  partnership.  The  test  would  be 
whether  they  are  really  co-owners  of  a  business  carried  on  for 
profit.  That  being  true,  each  is  liable  to  third  person  for  the  debts 
of  the  partnership,  and  such  third  person  is  not  concerned  with 
matters  of  indemnity  between  themselves.) 

Sec.  405.    Partnership  by  Estoppel. 

Case  No.  563.  Thompson  v.  First  National  Bank,  111 
U.  S.  536. 

Facts:  Suit  to  hold  one  as  a  partner  who  had  appeared 
in  public  advertisements  to  be  a  partner,  but  who  was 
not  really  such.  The  "holding  out"  was  not  known  to 
plaintiff  at  the  time  of  the  transaction. 

Point  Involved:  Of  the  estoppel  that  will  impose  on 
one  the  liability  of  a  partner,  when  he  is  not  really  a 
partner. 

"The  Court  was  requested  to  instruct  the  jury  that  if 
Thompson  was  not  in  fact  a  member  of  the  partnership, 
the  plaintiff  could  not  recover  against  him,  unless  it  ap- 
peared from  the  testimony  that  he  had  knowingly  per- 
mitted himself  to  be  held  out  as  a  partner,  and  that  the 
plaintiff  had  knowledge  thereof  during  its  transaction 
with  the  partnership.  The  Court  declined  to  give  this 
instruction,  and  instead  thereof  instructed  the  jury,  in 
substance,  that  if  Thompson  permitted  himself  to  be  held 


PARTNERSHIPS  DEFINED  821 

out  to  the  world  as  a  partner,  by  advertisements  and 
otherwise,  as  shown  by  the  evidence,  and  to  be  introduced 
to  other  persons  as  a  partner,  the  plaintiff  was  entitled 
to  the  benefit  of  the  fact  that  he  was  so  held  out,  and  he 
was  estopped  to  deny  his  liability  as  a  partner,  although 
the  plaintiff  did  not  know  that  he  was  so  held  out,  and 
did  not  rely  on  him  for  the  payment  of  the  plaintiff's 
debt,  or  give  credit  to  him,  in  whole  or  in  part.  This 
Court  is  of  opinion  that  the  Circuit  Court  erred  in  the 
instructions  to  the  jury,  and  in  the  refusal  to  give  the 
instruction  requested. 

"A  person  who  is  not  in  fact  a  partner,  who  has  no 
interest  in  the  business  of  the  partnership  and  does  not 
share  in  its  profits,  and  is  sought  to  be  charged  for  its 
debts  because  of  having  held  himself  out,  or  permitted 
himself  to  be  held  out,  as  a  partner,  cannot  be  made  liable 
upon  contracts  of  the  partnership  except  with  those  who 
have  contracted  with  the  partnership  upon  the  faith  of 
such  holding  out.  In  such  a  case,  the  only  ground  of 
charging  him  as  a  partner  is  that,  by  his  conduct  in  hold- 
ing himself  out  as  a  partner,  he  has  induced  persons  deal- 
ing with  the  partnership  to  believe  him  to  be  a  partner, 
and,  by  reason  of  such  belief,  to  give  credit  to  the  part- 
nership. As  his  liability  rests  solely  upon  the  ground  that 
he  cannot  be  permitted  to  deny  a  participatibn  which, 
though  not  existing  in  fact,  he  has  asserted,  or  permitted 
to  appear  to  exist,  there  is  no  reason  why  a  creditor  of 
the  partnership,  who  has  neither  known  of  nor  acted  upon 
the  assertion  or  permission,  should  hold  as  a  partner  one 
who  never  was  in  fact,  and  whom  he  never  understood  or 
supposed  to  be,  a  partner,  at  the  time  of  dealing  with 
and  giving  credit  to  the  partnership.  There  may  be 
cases  in  which  the  holding  out  has  been  so  public  and  so 
long  continued  that  the  jury  may  infer  that  one  dealing 
with  the  partnership  knew  it  and  relied  upon  it,  with- 
out direct  testimony  to  that  effect.  But  the  question 
whether  the  plaintiff  was  induced  to  change  his  position 
by  acts  done  by  the  defendant  or  by  his  authority  is,  as 
in  other  cases  of  estoppel  in  pais,  a  question  of  fact  for 


822  PARTNERSHIPS 

the  jury,  and  not  of  law  for  the  Court.  The  nature  and 
amount  of  evidence  requisite  to  satisfy  the  jury  may 
vary  according  to  circumstances.  But  the  rule  of  law  is 
always  the  same ;  that  one  who  had  no  knowledge  or  be- 
lief that  the  defendant  was  held  out  as  a  partner,  and 
did  nothing  on  the  faith  of  such  a  knowledge  or  belief, 
cannot  charge  him  with  liability  as  a  partner  if  he  was 
not  a  partner  in  fact. ' ' 

Question  563:  On  what  ground  may  one  be  held  to  be  liable 
as  a  partner  to  third  persons,  where  he  is  not  a  partner  in  fact  1 
What  are  the  essential  elements  in  such  a  case  ? 

Sec.  406.    Kinds  of  Partnerships. 

(a)  Trading  and  non-trading  partnerships. 

(b)  Limited  and  unlimited  partnerships. 

(c)  Joint  stock  companies. 

(d)  General  and  special  partnerships. 

(a)     Trading  and  Non-trading  Partnerships. 

(Note:  See  Judge  v.  Braswell,  post,  case  No.  581.  Partner- 
ships are  known  as  those  which  are  trading  and  those  which  are 
non-trading.  A  trading  partnership  is  one  which  as  its  main 
business,  buys  and  sells.  It  includes  the  great  bulk  of  commer- 
cial partnerships.  A  non-trading  partnership  does  not  buy  and 
sell  as  its  main  business.  Such  are  partnerships  of  lawyers,  phy- 
sicians, farmers,  laundrymen,  hotel  keepers,  and  the  like.  The 
distinction  is  important  as  determining  the  apparent  or  implied 
power  of  one  partner  to  bind  the  other.) 

(b)     Limited  and  Unlimited  Partnerships. 

(Partnerships  are  called  limited,  when  any  member  thereof  by 
agreement  has  limited  his  liability  for  losses.  Such  agreement 
is  effective  between  the  parties,  but  not  as  to  third  persons. 

Under  statutes  in  some  jurisdictions  limited  partnerships  may 
be  formed,  in  which  the  capital  only  of  the  firm  is  liable  for 
debts,  that  is,  there  is  no  personal  liability  apart  from  subscrip- 


PAKTNERSHIPS  DEFINED  823 

tions.    Such  partnerships  must  strictly  comply  with  the  technical 
requirements  of  the  law  or  they  will  he  held  general  partners. ) 

(c)    Joint  Stock  Companies. 

Case  No.  564.     People  v.  Rose,  219  111.  46. 

Point  Involved:    The  nature  of  a  joint  stock  company. 

Mb.  Justice  Mageudee  :  * '  *  *  *  A  joint  stock  com- 
pany is  defined  in  the  text  books  to  be  'an  association  of 
individuals  for  purposes  of  profit,  possessing  a  common 
capital,  which  is  divided  into  shares,  of  which  each  mem- 
ber possesses  one  or  more,  and  which  are  transferable 
by  the  owner.  These  associations,  formed  for  business 
purposes,  were  at  common  law,  and,  as  a  general  rule 
still  are  considered  merely  as  partnerships,  and  their 
rights  and  liabilities  are  in  the  main  governed  by  the 
same  rules  and  principles  which  regulate  commercial 
partnerships.*  (17  Am.  &  Eng.  Ency.  of  Law  [2d  Ed.], 
pp.  636,  637).  While  it  is  true  that  many  companies, 
called  joint  stock  companies,  have  many  of  the  essential 
characteristics  of  a  corporation,  yet  there  is  a  distinction 
between  such  companies  and  regularly  organized  cor- 
porations, so-called.  In  17  Am.  &  Eng.  Ency.  of  Law, 
(2d  Ed.),  p.  638,  it  is  said:  'In  respect  to  their  formation 
there  is  a  broad  distinction  between  a  corporation,  tech- 
nically so  called,  which  always  owes  its  existence  to  the 
sovereign  power  of  the  state,  and  a  joint  stock  company, 
which,  being  essentially  a  partnership,  is  brought  into 
being  by  the  contracts  of  its  members  inter  sese.y  Coun- 
sel refer  to  cases  in  other  states,  and  in  the  Federal 
courts,  holding  that  joint  stock  companies  possess  many 
of  the  characteristics  of  corporations,  but  the  definition, 
which  characterizes  them  as  partnerships,  has  been  recog- 
nized as  correct,  if  not  actually  adopted,  by  the  decisions 
of  the  Illinois  courts. 

Question  564:  What  is  a  "joint  stock  company  ? ' '  How  does 
it  differ  from  an  ordinary  partnership  ?  How  does  it  differ  from 
a  corporation  ?    Is  it  a  partnership  ? 


CHAPTER    SEVENTY-FOUR 
THE  FORMATION  OF  THE  PARTNERSHIP 

§  407.  The  form  of  the  partnership  §  409.  Who  may  be  partners. 

agreement.  §  410.  The  purpose  of  the  partner- 
§  408.  Partnerships  as  result  of  de-  ship. 

fective  incorporation. 

Sec.  407.    The  Form  of  the  Partnership  Agreement. 

(Note :  The  partnership  may  be  oral  or  in  any  written  form. 
The  usual  written  agreement  between  the  parties  consists  in 
"articles  of  partnership"  defining  the  duties,  obligations  and 
rights  of  each.) 

Sec.  408.    Partnership  as  the  Result  of  Defective 
Corporation. 

Case  No.  565.  Harrill  v.  Davis,  168  Fed.  187,  22  L.  R. 
A.  (N.  S.)  1152. 

Facts:  .  Suit  by  Harrill,  as  trustee  of  Western  Invest- 
ment Company,  against  Davis  and  three  others,  as  part- 
ners under  the  name  of  "Coweta  Cotton  &  Milling  Com- 
pany.' '  Defendants  deny  personal  liability,  and  assert 
that  the  company  was  a  corporation.  "The  patent  and 
indisputable  facts  in  this  case  are  that  the  four  defend- 
ants associated  themselves  together,  and  from  June,  1902, 
to  December  22,  1902,  actively  engaged  in  purchasing 
lumber,  material  and  labor  of  the  plaintiff,  and  in  con- 
structing a  cotton  gin  under  the  name  '  The  Coweta  Cot- 
ton &  Milling  Company,'  and  that  during  this  time  they 

824 


FORMATION  OF  PARTNERSHIP  825 

incurred  more  than  $4,700  of  the  indebtedness  of 
$5,145.48,  for  which  this  action  was  brought.  On  Decem- 
ber 22,  1902,  they  made  their  first  real  attempt  to  incor- 
porate, and  for  the  first  time  took  on  the  color  or  appear- 
ance of  a  corporation.  On  that  day  they  filed  articles  of 
incorporation  with  the  clerk  of  the  Court  of  Appeals,  but 
they  never  filed  any  duplicate  of  them  with  .the  clerk  of 
the  judicial  district  in  which  their  place  of  business  was 
located,  as  required  by  the  statutes  in  order  to  constitute 
them  a  legal  corporation  and  to  authorize  them  to  do 
business  as  such  [under  the  Arkansas  laws]."  (From 
the  opinion  of  Judge  Sanborn.) 

Point  Involved:  That  personal  liability,  as  of  partners, 
will  attach  where  parties  associate  themselves  under  a 
fictitious  name  but  do  not  at  least  constitute  themselves 
a  de  facto  corporation.  Of  the  procedure  necessary  in 
order  to  establish  a  de  facto  corporation. 

Sanborn,  C.  J. :  "  *  *  *  The  general  rule  is  that 
parties  who  associate  themselves  together  and  actively 
engage  in  business  for  profit  under  any  name  are  liable 
as  partners  for  the  debts  they  incur  under  that  name.  It 
is  an  exception  to  this  rule  that  such  associates  may  es- 
cape individual  liability  for  such  debts  by  a  compliance 
with  incoiporation  laws  or  by  a  real  attempt  to  comply 
with  them,  which  gives  the  color  of  a  legal  corporation, 
and  by  the  user  of  the  franchise  of  such  a  corporation  in 
the  honest  belief  that  it  is  duly  incorporated.  When  the 
fact  appears,  as  it  does  in  the  case  at  bar,  by  indisputable 
evidence  that  parties  associated  and  knowingly  incurred 
liabilities  under  a  given  name,  the  legal  presumption  is 
that  they  are  governed  by  the  general  rule,  and  the  bur- 
den is  upon  them  to  prove  that  they  fall  under  some  ex- 
ception to  it.  Owen  v.  Shepard,  8  C.  C.  A.  244,  19  U.  S. 
App.  336,  59  Fed.  746;  Wechselberg  v.  Flour  City  Nat. 
Bank,  26  L.  R.  A.  470, 12  C.  C.  A.  56,  60,  61,  24  U.  S.  App. 
308,  64  Fed.  90,  94;  Clark  v.  Jones,  87  Ala.  474,  6  So.  362. 

"Counsel  for  the  defendants  argue  with  much  force 
and  persuasiveness  that  they  escape  liability  because  they 


826  PARTNERSHIPS 

became  a  corporation  de  facto,  although  they  concede 
that  they  never  became  a  corporation  de  jure;  and  in 
support  of  this  position  they  cite,  among  other  cases: 
( Citing  Cases. )  But  in  every  one  of  these  authorities  arti- 
cles of  incorporation  had  been  filed  under  a  general  en- 
abling act,  or  a  charter  had  been  issued,  and  there  had 
been  a  user  of  the  franchise  of  the  supposed  corporation 
which  had  been  colorably  created  by  the  filing  of  the  arti- 
cles or  the  issue  of  the  charter  before  the  indebtedness  in 
question  was  created,  while  nothing  of  this  nature  had 
been  done  before  the  debt  for  the  $4,700,  which  we  are 
now  considering,  was  incurred.  The  authorities  which 
have  been  recited  rest  upon  the  proposition  that  where 
parties  procure  a  charter  or  file  articles  of  association 
under  a  general  law,  thereby  secure  the  color  of  a  legal 
incorporation,  believe  that  they  are  a  corporation,  and 
use  the  supposed  franchise  of  the  corporation  in  good 
faith,  and  third  parties  deal  with  them  as  a  corporation, 
they  become  a  corporation  de  facto  and  exempt  from  in- 
dividual liability  to  such  third  parties,  although  there 
are  unknown  defects  in  the  proceedings  for  their  incor- 
poration. The  statement  of  Morawetz  on  Private  Cor- 
porations, Vol.  2,  at  Sec.  748,  upon  which  counsel  seem 
to  rely,  that  'if  an  association  assumes  to  enter  into  a 
contract  in  a  corporate  capacity,  and  the  party  dealing 
with  the  association  contracts  with  it  as  if  it  were  a  cor- 
poration, the  individual  members  of  such  association  can- 
not be  charged  as  parties  to  the  contract,  either  severally 
or  jointly  or  as  partners.  This  is  equally  true  whether 
the  association  was  in  fact  a  corporation  or  not,  and 
whether  the  contract  with  the  association  in  its  corporate 
capacity  was  authorized  by  the  legislature  or  prohibited 
by  law,  and  illegal' — is  too  broad  to  be  sound.  Parties 
who  actively  engage  in  business  for  profit  under  the  name 
and  pretense  of  a  corporation  which  they  know  neither 
exists  nor  has  any  color  of  existence  may  not  escape  in- 
dividual liability  because  strangers  are  led  by  their  pre- 
tense to  contract  with  their  pretended  entity  as  a  cor- 
poration.   In  such  cases  they  act  as  the  agents  of  a  prin- 


WHO  MAY  BE  PARTNERS  827 

cipal  that  they  know  does  not  exist,  and  they  are  liable 
under  a  familiar  rule,  because  there  is  no  responsible 
principal.  2  Kent,  Com.  14th  ed.  630 ;  Queen  City  Furni- 
ture &  Carpet  Co.  v.  Crawford,  127  Mo.  356,  364, 30  S.  W. 
163." 

Question  565:     (1.)     "What  is  a  de  facto  corporation? 
(2.)     Why  was  there  none  in  this  case? 

(3.)  State  the  facts  in  the  case  above,  whether  the  parties 
were  here  individually  liable  and  why. 

Sec.  409.    Who  May  Be  Partners. 

(See  Cases  15  and  16,  supra,  as  to  general  capacity  of 
married  women  and  insane  persons  to  contract.) 

Case  No.  566.    Jennings  v.  Stannus,  191  Fed.  347. 

Facts:  For  the  purpose  of  claiming  his  exemptions 
out  of  the  partnership  property,  William  A.  Stannus  of 
the  firm  of  Stannus  &  Son,  bankrupt  (there  being  no  ex- 
emption allowed  to  partners  out  of  partnership  prop- 
erty), shows  that  the  son  is  a  minor,  and  contends  that 
this  avoids  the  partnership. 

Wolveeton,  D.  J. :    ' '  *     *     * 

''This  disposes  of  the  principal  question.  It  remains 
to  determine  whether  the  son  being  a  minor  avoids  the 
partnership  relations.  An  infant's  agreement  to  enter 
into  a  co-partnership,  like  most  other  contractual  obliga- 
tions of  his,  is  not  void,  but  voidable  only,  and  that  at  his 
instance  or  within  a  reasonable  time  after  arriving  of 
age.  It  is  only  such  agreements  as  are  not  possibly  to  be 
regarded  as  beneficial  to  him  which  are  null  from  the 
beginning.  Partnership  obligations  will  not,  however, 
bind  him  personally,  but  are  valid  against  the  firm,  and 
are  entitled  to  payment  out  of  the  partnership  assets, 
regardless  of  the  minority  of  one  of  its  members.  These 
principles  are  well  settled  by  uniform  trend  of  authority : 
Sparman  v.  Keim,  83  N.  Y.  245;  Dunton  v.  Brown,  31 


828  PARTNERSHIPS 

Mich.  182 ;  Moley  v.  Brine,  120  Mass.  324 ;  Page  v.  Morse, 
128  Mass.  99;  Gay  v.  Johnson,  32  N.  H.  167;  Bush  et  al. 
v.  Linthicum,  59  Md.  344;  Ex  parte  Taylor,  44  Eng.  Re- 
print,  388;  Goode  &  Benmon  v.  Harrison,  105  Eng.  Re- 
print, 1147;  Bates,  Law  of  Partnership,  Vol.  1,  §§  142- 
148. 

"It  follows  that  the  partnership,  where  a  member  of 
the  firm  is  a  minor,  continues  in  all  respects  valid  until 
the  minor  has  declared  his  privilege  and  has  withdrawn 
from  the  firm.  So  that  in  the  present  case,  the  son  hav- 
ing in  no  way,  so  far  as  the  record  discloses,  declared  his 
withdrawal,  the  partnership  of  William  A.  Stannus  & 
Son  continues  valid  and  undissolved,  except  for  the  as- 
signment in  bankruptcy.  Such  being  the  case,  the  elder 
Stannus  cannot  claim  his  exemption  out  of  the  partner- 
ship property  of  William  A.  Stannus  &  Son. ' ' 

Question  566:  If  a  minor  is  a  member  of  a  partnership  may 
he  withdraw  therefrom  at  any  time  and  demand  an  accounting  ? 
Is  his  partnership  agreement  void  or  voidable  ?  Are  partnership 
obligations  incurred  while  he  was  a  member  binding  on  him  per- 
sonally ?    Are  such  obligations  binding  on  the  assets  of  the  firm  ? 

Case  No.  567.     Adams  v.  Beall,  67  Md.  53. 
Facts:    The  facts  are  stated  in  the  opinion. 
Point  Involved:     The  right  of  an  infant  partner  to 
withdraw  from  the  partnership  and  recover  his  capital. 

Robinson,  J.:  "The  appellee,  while  a  minor,  paid  to 
the  appellant  $2,900,  as  a  consideration  for  being  ad- 
mitted as  a  partner  in  the  appellant's  business.  The  part- 
nership continued  for  more  than  a  year,  and,  finding  it 
unprofitable,  the  appellee,  without  formally  dissolving 
the  partnership,  withdrew  from  the  business.  The  ques- 
tion in  the  case  is  whether  the  appellee  is  entitled  to  re- 
cover of  the  appellant  the  money  thus  paid.  His  right 
to  disaffirm  the  partnership  contract,  and  to  avoid  all  lia- 
bilities under  it,  including  the  partnership  debts,  is  not 
denied.    Being  an  infant  when  the  contract  was  made, 


WHO  MAY  BE  PARTNERS  829 

this  is  a  privilege  to  which  for  his  protection  he  is  en- 
titled. But  when  he  seeks  to  recover  money  paid  for  a 
consideration  which  he  has  enjoyed  or  has  had  the  benefit 
of,  this  presents  quite  another  question.  The  $2,900  was 
paid  to  the  appellant  in  consideration  of  being  admitted 
as  a  partner  in  his  business.  He  was  admitted  as  a  part- 
ner, and  continued  to  be  a  member  of  the  firm  for  at  least 
a  year.  The  business  was  not,  it  is  true,  a  successful  one, 
but  this,  in  the  absence  of  fraudulent  representations  on 
the  part  of  the  appellant,  cannot  affect  the  question.  We 
are  dealing  with  a  contract  between  an  infant  and  adult, 
executed  on  both  sides,  and  upon  the  faith  of  which  money 
was  paid  by  the  infant  for  a  consideration  which  he  has 
enjoyed.  The  privilege  of  infancy,  says  Lord  Mansfield 
in  Zouch  v.  Parsons,  3  Burrows  1804,  was  intended  as  a 
shield  or  protection  to  the  infant,  and  not  to  be  used  as 
the  instrument  of  fraud  and  injustice  to  others;  and  to 
hold  that  an  infant  has  the  right,  not  only  to  withdraw 
from  a  partnership  at  his  own  pleasure,  and  to  subject 
the  adult  partner  to  the  payment  of  all  the  partnership 
debts,  but  has  the  right  also  to  recover  money  paid  by 
him  as  a  consideration  for  being  admitted  into  the  part- 
nership, would  be,  it  seems  to  us,  to  extend  the  privilege 

beyond  any  just  principles  upon  which  it  is  founded. 

<  i,  *     *     * 

"We  have  quoted  at  length  from  the  preceding  cases, 
because  the  question  at  issue  is  an  important  one,  and 
comes  before  us  for  the  first  time  for  decision.  And  while 
fully  recognizing  the  privilege  which  the  law  accords  to 
minors  in  regard  to  contracts  made  during  their  minority, 
yet,  in  a  case  like  the  present,  where  money  is  paid  by  a 
minor  in  consideration  of  being  admitted  as  a  partner  in 
the  business  of  the  appellant,  and  he  does  become  and  re- 
mains a  partner  for  a  given  time,  he  ought  not  to  be  al- 
lowed to  recover  back  the  money  thus  paid  unless  he  was 
induced  to  enter  into  the  partnership  by  the  fraudulent 
representations  of  the  appellant.     *     *     * " 

Question  567:  What  was  the  suit  in  this  case  about?  Did  it 
prevail  ? 


830  PARTNERSHIPS 

(Note:  Lindley  says  (Lindley  on  Partnership,  8th  Ed.,  p.  91) 
"Moreover,  notwithstanding  the  general  irresponsibility  of  an 
infant,  he  cannot,  as  against  his  co-partners,  insist  that  on  taking 
the  partnership  accounts  he  shall  be  credited  with  profits  and 
not  be  debited  with  losses.  *  *  *  An  infant  partner  may 
avoid  the  contract  into  which  he  has  entered,  either  before  or 
within  a  reasonable  time  after  he  becomes  of  age.  If  he  avoids 
the  contract  and  has  derived  no  benefit  from  it,  he  is  entitled  to 
recover  back  any  money  paid  by  him  *  *  * ;  but  he  cannot 
do  this  if  he  has  already  obtained  advantages  under  the  contract, 
and  is  unable  to  restore  the  party  contracting  with  him  to  the 
same  position  as  if  no  contract  had  been  entered  into.") 

Sec.  410.    The  Purpose  of  the  Partnership. 

Case  No.  568.    Goodrich  v.  Tenney,  144  111.  422. 
(Set  out  as  Case  No.  73,  supra.) 

Question  568:  If  a  partnership  is  formed  for  illegal  purposes, 
can  one  partner  force  an  accounting  from  the  other  1 


PART    XXI 

FIRM  NAME  AND  PROPERTY 

Chapter  Seventy-five.     The  Firm  Name. 
Chapter  Seventy-six.      The  Firm  Property. 

CHAPTER    SEVENTY-FIVE 
THE  FIRM  NAME 

§  411.  Firm  name  not  indispensable.       §  413.  Use  of  firm  name. 
§  412.  What    may    constitute    firm 
name. 

Sec.  411.    Firm  Name  Not  Indispensable. 

(Note:  A  firm  name  is  not  absolutely  indispensable.  If 
parties  are  actually  partners,  the  fact  that  they  have  not  adopted 
any  name  will  not  prevent  liability  to  third  persons  or  any  other 
legal  consequence  of  partnership.) 

Sec.  412.    What  May  Constitute  Firm  Name. 

Case  No.  569.  Crawford  et  al.  v.  Collins  et  al.,  45 
Barb.  269. 

Facts:  Suit  on  a  bond  given  by  defendants  to  " Union 
Towing  Company.* '  Plaintiffs  sue  in  their  own  proper 
names,  as  partners  constituting  the  partnership  under 
that  name. 

831 


832  PARTNERSHIPS 

James,  J.:  "This  action  was  properly  brought  in  the 
individual  names  of  the  plaintiffs ;  they  were  the  persons 
who  composed  the  firm  known  as  the  "Union  Towing 
Company,"  the  real  owners  of  the  debt  and  the  legal 
holders  of  the  bond.  The  parties  to  a  partnership  may 
give  it  just  such  name  as  they  please,  and  all  contracts, 
obligations  or  notes  made  with  or  given  to  such  firms  may 
be  prosecuted  in  the  individual  names  of  its  members. 

"It  is  different  with  corporations;  but  the  Union  Tow- 
ing Company  was  not  a  corporation.     *     *     *" 

Question  569:  (1.)  In  the  absence  of  statute,  may  the  part- 
ners adopt  a  fictitious  name  ? 

(2.)  How  is  suit  brought  by  or  against  partners  on  a  contract 
executed  in  a  partnership  name  that  does  not  disclose  the  names 
of  all  the  partners  ? 

(3.)  A.  promissory  note  was  given  by  W.,  P.  and  S.,  three 
partners  composing  a  partnership  under  the  name  of  W.  &  P. 
The  three  partners,  W.,  P.  and  S.  are  sued  thereon.  S.  defends 
he  was  not  a  party  to  the  note.  Assuming  he  is  really  a  partner 
and  that  the  note  is  a  partnership  note,  is  his  defense  good? 
(Swan  v.  Steele,  7  East.  210.) 

Case  No.  570.    North  v.  Moore,  135  Cal.  621. 

Facts:  Suit  by  certain  parties  as  partners  trading  as 
Abrams  Bros.  Defense,  that  Abrams  Bros,  have  not 
complied  with  California  law  requiring  every  partner- 
ship transacting  business  under  fictitious  name  or  a  des- 
ignation not  showing  the  names  of  the  persons  inter- 
ested, to  file  with  clerk  of  county  court  a  certificate 
showing  real  names  and  make  publication  thereof  in  some 
newspaper,  etc. 

Point  Involved:  The  necessity  of  complying  with 
statutory  regulations  enacted  in  some  states  with  ref- 
erence to  use  of  firm  name  not  showing  the  real  names  of 
the  parties  interested. 

Chipman,  C. :  "*  *  *  The  firm  name  might  apply 
equally  to  a  partnership  composed  of  two  or  more  and 
might  embrace  all  or  only  some  of  the  brothers  by  the 


FIRM  NAME  833 

name   of  Abrams.     The   statute   clearly  defeats  their 
rights  to  maintain  an  action    *     *     V 

Questian  570:  Under  what  authority  was  the  defense  made 
in  this  case  ?  Why  could  not  such  defense  have  been  made  in  the 
case  immediately  preceding? 

(Note:  Such  provisions  are  in  force  in  some,  but  not  in  all 
the  states.) 

Sec.  413.    Use  of  Firm  Name. 

(See  the  foregoing  cases  in  this  chapter;  also  the  fol- 
lowing in  this  section.) 

Case  No.  571.  Hendren  v.  Wing,  Stephens  and  Eggles- 
ton,  60  Ark.  561. 

Facts:  Suit  to  reclaim  personal  property  mortgaged 
to  plaintiffs  naming  them  as  the  Arkansas  Machinery  & 
Supply  Company.  Defense,  that  this  name  is  not  the 
name  either  of  a  natural  person  or  a  corporation. 

Riddick,  J.:  "The  Arkansas  Machinery  &  Supply 
Company  is  not  a  corporation,  but  it  is  the  business 
name  of  a  firm  of  partners.  The  question  for  ns  to  de- 
termine is  whether  a  chattel  mortgage,  executed  to  it,  as 
such  partnership,  is  valid  at  law.  The  decisions  in  re- 
gard to  transfers  of  real  estate  to  partnerships  are  based 
1  on  the  old  rule  that  '  a  partnership,  as  such,  cannot  at 
law  be  the  grantee  in  a  deed,  or  hold  real  estate. '  Perce- 
full  v.  Piatt,  36  Ark.  464.  This  rule  does  not  apply  to 
personal  property.  On  the  contrary,  a  partnership,  as 
such,  can  at  law  be  the  vendee  in  a  bill  of  sale  or  other 
conveyance  of  personal  property.  The  custom  of  the 
country  teaches  us  that  this  is  so.  The  business  of  the 
country  is  largely  carried  on  by  partners  under  part- 
nership names  which  frequently  do  not  contain  the  name 
of  any  person.  *  *  *  A  consideration  of  this  fact 
shows  that  there  is  a  wide  distinction  between  the  rights 


834  PARTNERSHIPS 

of  partnerships  at  law,  in  regard  to  buying  and  selling 
of  personal  property  and  the  restrictions  that  prevail 
there  in  regard  to  transfers  of  real  estate    *     *     V 

Question  571:  (1.)  What  was  the  question  raised  in  this 
case? 

(2.)     Was  the  subject  matter  real  or  personal  property  ? 

(3.)  In  the  opinion  of  the  Court  did  the  nature  of  the  prop- 
erty as  personal  or  real  make  a  vital  distinction  ? 

Case  No.  572.    Percefull  and  wife  v.  Piatt,  36  Ark.  456. 

Facts:  Deed  to  real  estate  to  George  F.  Lovejoy  & 
Co.  Piatt  sues  in  ejectment  under  this  deed  asserting 
that  he  is  the  surviving  partner  of  George  F.  Lovejoy  & 
Co.,  and  as  such  surviving  partner  succeeds  to  the  title 
of  the  firm.  An  ejectment  is  an  action  at  law  on  strictly 
legal  title  without  assistance  from  equitable  claims. 

Point  Involved:  In  a  deed  of  conveyance  of  real  estate 
to  a  grantee  named  by  a  partnership  name  not  containing 
the  names  of  all  of  the  partners,  in  whom  is  the  legal 
title  under  such  deed? 

Eakin,  J.:    "•     *     * 

"A  partnership,  as  such,  can  not,  at  law,  be  the  grantee 
in  a  deed,  or  hold  real  estate.  The  legal  title  must  vest 
in  some  person,  and  a  partnership  is  not  a  corporation. 
If  the  title  be  made  to  all  the  partners  by  name,  they 
hold  the  legal  title  as  tenants  in  common,  without  sur- 
vivorship. If  to  one  partner  alone,  the  whole  legal  title 
vests  in  him,  which  is  the  case,  also,  where  the  title  is 
to  a  partnership  name,  which,  as  in  this  case,  expresses 
the  name  of  one  party  only,  with  the  addition  of  "&  Co." 
If  the  deed  be  to  a  name  adopted  as  the  firm  style,  which 
includes  the  name  of  no  party,  it  passes  nothing  in  law. 
The  same  occurs  where  the  deed  is  to  one  already  dead. 

"Different  rules  prevail  in  equity,  which  considers  the 
real  purpose  of  the  acquisition,  and,  by  the  machinery 
of  trusts,  converts  real  estate,  held  for  partnership  pur- 
poses, into  personalty,  so  far  as  may  be  necessary  to  set- 


FIRM  NAME  835 

tie  all  the  equities  between  the  firm  and  its  creditors, 
and  between  the  partners  themselves.  What  is  left,  after 
that,  goes  as  real  estate,  equitably  amongst  all,  regard- 
less of  the  accidental  position  of  the  legal  title.  The  case 
before  us  does  not  require  us  to  deal  with  these  equities 
at  present. 

' '  That  Piatt  was  a  surviving  partner  did  not  give  him, 
at  law,  any  additional  rights  to  lands  held  by  both,  even 
if  held  as  partnership  property.  There  is  no  survivor- 
ship in  such  estates  at  law.  Upon  the  death  of  a  partner, 
the  legal  estate  in  a  survivor  remains  as  before.  That 
of  the  deceased  goes  to  his  heirs.  Each  holds  as  trustee 
of  the  partnership  and  of  each  other. 

'  'And,  where  the  whole  legal  estate  was  in  the  de- 
ceased, it  goes,  all,  to  his  heirs,  and  nothing  to  the  sur- 
vivor, save  his  equities.  These  principles  are  elementary, 
and  may  be  found  rn  all  the  text-books. 

"If,  as  he  alleges,  the  lands  were  purchased  by  said 
firm,  at  execution  sale,  and  a  deed  taken  from  the  sheriff 
to  the  firm,  it  would  have  vested  the  whole  legal  title  in 
Love  joy,  whose  name  is  the  only  one  revealed  by  the  firm 
style.  Gossett  et  al.  v.  Kent  et  al.,  19  Ark.  602 ;  Moreau 
v.  Safferans,  3  Sneed,  595;  Wash,  on  R.  Prop.,  vol.  1, 
mar.  p.  422. 

"The  purchase,  by  plaintiff,  of  Lovejoy's  interest  in 
the  judgment,  had  no  effect  on  the  title  to  the  land  ac- 
quired under  it.  Nor  could  plaintiff  acquire  any  title  to 
sustain  the  action  by  means  of  the  deed  from  Love  joy's 
administrator  executed  after  suit  began. 

"Conceding  all  that  is  stated  in  the  complaint,  there 
is  nothing  in  the  pleadings  or  record  upon  which  the 
judgment  can  be  supported.  Even  if  the  title  had  been 
jointly  in  plaintiff  and  Love  joy,  it  would  not  justify  a 
judgment  for  the  whole  in  favor  of  the  former  as  sur- 
vivor. ' ' 

Question  572:  "What  was  the  firm  name  in  this  case?  How 
did  the  firm  acquire  the  property  ?    Did  plaintiff  recover  ?    Why  ? 


CHAPTER    SEVENTY-SIX 
THE  FIRM  PROPERTY 

§  414.  As    distinguished    from    firm       §  415.  What  constitutes  firm  prop- 
capital,  erty. 

Sec.  414.    As  Distinguished  from  Firm  Capital. 

(Note:  The  capital  and  the  property  of  the  firm  must  be 
distinguished  as  in  the  ease  of  a  corporation.  The  firm  capital 
is  a  certain  fixed  amount,  [changeable  by  agreement]  which 
the  partners  pay  in  as  their  share  of  the  fund  with  which  the 
partnership  may  carry  on  its  business.  See  later  subjects  for 
questions  arising  in  respect  to  the  capital.) 

Sec.  415.    What  Constitutes  Firm  Property. 

Case  No.  573.     Bobinson  Bank  v.  Miller,  153  111.  244. 

Facts:  Suit  to  determine  whether  certain  land  be- 
longed individually  to  partners  or  to  the  partnership. 
The  land  was  bought  by  the  parties  in  undivided  owner- 
ship before  the  partnership  was  formed  between  them. 
It  was  not  bought  with  partnership  funds,  but  with  indi- 
vidual funds,  and  entries  were  not  made  on  the  firm  books 
showing  that  the  land  was  regarded  as  partnership?  capi- 
tal. The  land  was,  however,  used  for  firm  purposes,  that 
of  conducting  a  mill,  and  the  firm  paid  for  repairs  and 
new  machinery  on  the  mill. 

Point  Involved:  "When  property  is  to  be  regarded  as 
firm  property  or  the  property  of  the  partners  in  their  in- 
dividual capacity. 

836 


FIRM  PROPERTY  837 

Mr.  Justice  Magruder:    "*     *     * 

' '  Whether  real  estate,  upon  which  a  partnership  trans- 
acts its  business,  is  firm  property  or  the  property  of  the 
individual  members  of  the  firm,  is  oftentimes  a  difficult 
question  to  determine,  and  one  upon  which  the  authori- 
ties are  not  altogether  uniform. 

"The  mere  fact  of  the  use  of  land  by  a  firm  does  not 
make  it  partnership  property.  (Goepper  v.  Ginsinger, 
39  Ohio  St.  429;  Hatchett  v.  Blanton,  72  Ala.  423.)  Nor 
is  real  estate  necessarily  the  individual  property  of  the 
members  of  a  firm  because  the  title  is  held  by  one  member 
or  by  the  several  members  in  undivided  interests.  (1 
Bates  on  Law  of  Partnership,  sec.  280.)  Whether  real 
estate  is  partnership  or  individual  property  depends 
largely  upon  the  intention  of  the  partners.  That  inten- 
tion may  be  expressed  in  the  deed  conveying  the  land, 
or  in  the  articles  of  partnership;  but  when  it  is  not  so 
expressed,  the  circumstances,  usually  relied  upon  to  de- 
termine the  question,  are  the  ownership  of  the  funds 
paid  for  the  land,  the  uses  to  which  it  is  put,  and  the 
manner  in  which  it  is  entered  in  the  accounts  upon  the 
books  of  the  firm.  (1  Bates  on  Law  of  Part.  sec.  280;  2 
Lindley  on  Part.  marg.  page  649;  17  Am.  &  Eng.  Enc. 
of  Law,  page  945,  and  cases  in  note.) 

"Where  real  estate  is  bought  with  partnership  funds 
for  partnership  purposes,  and  is  applied  to  partnership 
uses,  or  entered  and  carried  in  the  accounts  of  the  firm 
as  a  partnership  asset,  it  is  deemed  to  be  firm  property ; 
and,  in  such  case,  it  makes  no  difference,  in  a  court  of 
equity,  whether  the  title  is  vested  in  all  the  partners  as 
tenants  in  common,  or  in  one  of  them,  or  in  a  stranger. 
(Parsons  on  Part. — 4  ed. — sec.  265;  1  Bates  on  Law  of 
Part.  sec.  281 ;  Johnson  v.  Clark,  18  Kans.  157 ;  17  Am.  & 
Eng.  Enc.  of  Law,  page  948,  and  cases  cited.)  If  the  real 
estate  is  purchased  with  partnership  funds,  the  party 
holding  the  legal  title  will  be  regarded  as  holding  it  sub- 
ject to  a  resulting  trust  in  favor  of  the  firm  furnishing 
the  money.  In  such  case  no  agreement  is  necessary ;  and 
the  statute  of  frauds  has  no  application.  (Barker  v. 
Bowles,  57  N.  H.  491;  1  Bates  on  Law  of  Part.  sec.  281.) 


838  PARTNERSHIPS 

"In  the  case  at  bar,  the  land  was  not  purchased  with 
partnership  funds.  *  *  *  Each  partner  here  held  the 
title  to  an  undivided  one-third  part  of  the  property.  No 
entries  were  made  upon  the  books  of  the  firm,  showing 
that  the  real  estate  was  treated  as  firm  assets.  The  evi- 
dence, however,  does  show  that  the  property  was  bought 
for  the  purpose  of  being  used  in  the  milling  business,  and 
that,  after  its  purchase,  it  was  used  for  firm  purposes, 
and  that  the  firm  gave  its  notes  to  pay  for  the  repairs  and 
for  placing  new  machinery  in  the  mill  upon  the  premises. 
Under  these  circumstances,  was  the  land  partnership 
property,  or  the  individual  property  of  the  partners  hold- 
ing as  tenants  in  common? 

"It  cannot  be  said,  that  the  land  is  firm  property  upon 
the  theory  of  a  resulting  trust,  because  the  money  of  the 
firm  was  not  used  to  buy  the  property.  Such  a  trust 
might  exist  in  favor  of  the  firm,  regarding  it  as  a  person, 
if  the  partners  had  taken  the  legal  title,  and  the  firm  had 
advanced  the  purchase  money.  The  trust  must  arise  at 
the  time  of  the  execution  of  the  conveyance,  and  when 
the  title  vests  in  the  grantee.  Such  could  not  have  been 
the  case  here  under  the  facts  stated.  (Van  Buskirk  v.  Van 
Buskirk,  148  HI.  9.)  In  view  of  the  fact,  that  the  land 
was  bought  with  individual,  and  not  partnership,  funds, 
and  was  conveyed  in  undivided  interests  to  the  several 
partners,  and  in  the  absence  of  any  agreement  that  it 
should  be  regarded  as  firm  property,  does  the  conduct  of 
the  parties  in  afterwards  forming  a  partnership,  and 
using  the  property  for  partnership  purposes,  and  re- 
pairing and  improving  the  mill  at  the  expense  of  the 
firm,  make  the  land  firm  property  in  a  court  of  equity? 
A  negative  answer  to  this  question  is  found  in  many  au- 
thorities as  will  be  seen  by  reference  to  the  following: 
Alexander  v.  Kimbro,  49  Miss.  529 ;  Thenot  v.  Michel,  28 
La.  Ann.  107 ;  Reynolds  v.  Ruckman,  35  Mich.  80 ;  Parker 
v.  Bowles,  57  N.  H.  491 ;  Thompson  v.  Bowman,  6  Wall. 
316;  Frink  v.  Branch,  16  Conn.  260;  Wheatley's  Heirs  v. 
Calhoun,  12  Leigh.  264;  Sikes  v.  Work,  6  Gray,  433; 


FIRM  PROPERTY  839 

Gordon  v.  Gordon,  49  Mich.  501 ;  Moody  v.  Rathburn,  7 
Minn.  89 ;  Paige  v.  Paige,  71  Iowa,  318 ;  Parsons  on  Part. 
(4th  ed.)  sec.  266;  Hanchett  v.  Blanton,  supra.  The 
general  doctrine  of  all  these  cases  is,  that  a  purchase  of 
the  land  with  partnership  funds  is  necessary  to  make  it 
firm  property.  Parsons  in  his  work  on  Partnership  (4th 
ed.)  says :  'Although  it  (real  estate)  be  held  in  the  joint 
name  of  two  or  more  persons,  if  there  be  no  proof  that  it 
was  purchased  with  partnership  funds  for  partnership 
purposes,  it  will  be  considered  as  held  by  them  as  joint 
tenants,  or  tenants  in  common ;  *  *  *  So,  if  not  paid 
for  by  partnership  funds,  then  it  is  probably  his  prop- 
erty who  does  pay  for  it,  whatever  use  he  permits  to  be 
made  of  it.'  (Sees.  265,  266.)  In  Hanchett  v.  Blanton, 
supra,  the  Supreme  Court  of  Alabama  says:  'Steering 
clear  of  all  cases  of  fraud  or  of  the  use  by  one  partner, 
without  the  approbation  of  his  associates,  of  partnership 
funds  in  the  acquisition  of  real  estate,  the  two  facts 
must  concur  to  constitute  real  estate  partnership  prop- 
erty— acquisition  with  partnership  funds,  or  on  part- 
nership credit,  and  for  the  uses  of  the  partnership. '  In 
Thompson  v.  Bowman,  supra,  the  Supreme  Court  of  the 
United  States  says:  'In  the  absence  of  proof  of  its  pur- 
chase with  partnership  funds  for  partnership  purposes, 
real  property  standing  in  the  names  of  several  persons 
is  deemed  to  be  held  by  them  as  joint  tenants,  or  as  ten- 
ants in  common. '  (Buchan  v.  Sumner,  2  Barb.  Ch.  165.) 
"There  are  cases  which  hold,  that  even  though  the 
land  was  originally  bought  by  the  several  partners  with 
their  individual  funds,  and  deeded  to  them  as  tenants  in 
common,  yet  it  will  be  regarded  in  equity  as  firm  prop- 
erty where  it  is  improved  out  of  partnership  funds  for 
firm  purposes  and  actually  used  for  such  purposes,  or 
where  the  firm  puts  valuable  and  permanent  improve- 
ments upon  it  for  firm  purposes,  and  which  are  essential 
to  the  firm.  In  some  instances  the  land  is  held  to  be  the 
property  of  the  partners,  and  the  improvements  to  be 
the  property  of  the  firm.  (1  Bates  on  Law  of  Part.  sees. 
281,  282.)    The  use  of  the  property  is  not  conclusive  of 


840  PARTNERSHIPS 

i.ts  character  as  real  estate  or  personalty,  but  is  only 
evidence  of  the  intention  of  the  parties.  (Idem,  sec.  285.) 
When  the  intention  of  the  partners  to  convey  the  land 
into  firm  property  is  inferred  from  circumstances,  the 
circumstances  must  be  such  as  do  not  admit  of  any  other 
equally  reasonable  and  satisfactory  explanation.  (Par- 
sons on  Part.  sec.  267. )  And  where  it  is  sought  to  show 
a  conversion  of  the  land  into  personalty  by  agreement  of 
the  partners,  such  agreement  must  be  clear  and  explicit. 
(17  Am.  &  Eng.  Enc.  of  Law,  page  954,  and  cases  cited.) 

a  #       #       # 

"The  weight  of  authority  seems  to  us  to  support  the 
position  that,  where  persons,  who  afterwards  become 
partners,  buy  land  in  their  individual  names,  and  with 
their  individual  funds,  before  the  making  of  a  partner- 
ship agreement,  the  land  will  be  regarded  as  the  individ- 
ual property  of  the  partners,  in  the  absence  of  a  clear 
and  explicit  agreement  subsequently  entered  into  by  them 
to  make  it  firm  property,  or  in  the  absence  of  controlling 
circumstances  which  indicate  an  intention  to  convert  it 
into  firm  assets.  We  do  not  think  that  an  application  of 
this  rule  to  the  facts  of  the  present  case  shows  the  real 
estate  here  in  controversy  to  be  firm  property.  The  testi- 
mony proves  affirmatively  that  there  was  no  agreement, 
written  or  verbal,  to  put  the  land  into  the  firm  as  a  firm 
asset,  and  that  it  was  treated  by  the  parties  as  individual 
property. ' ' 

Question  573:  Discuss  generally  the  question.  When  is  real 
estate  used? 

(Note:  The  partner's  interest  in  the  firm  property,  whether 
personal  or  real,  is  thus  stated,  "The  real  interest  of  a  partner 
in  the  join  property  is  a  moity  of  the  surplus  that  may  remain 
after  the  joint  debts  are  discharged."  Newhall  v.  Buckingham, 
14  111.  405.    [Set  out  as  Case  No.  597,  post] ) 


PART    XXII 

MUTUAL  RIGHTS  AND  OBLIGATIONS  OF 
PARTNERS 

Chapter  Seventy-seven.    Partners    Must    Act    Toward 

Each  Other  in  Good  Faith. 

Chapter  Seventy-eight.      Sundry  Rights  of  Partners  in 

Going  Concern. 


CHAPTER    SEVENTY-SEVEN 

PARTNERS  MUST  ACT  TOWARD  EACH  OTHER  IN 
GOOD  FAITH 

§  416.  Good    faith    in    dealing   with  §  418.  Obligation    not    to    compete 

partners.  with  firm. 

§  417.  Acquisition   of   interests    ad-  §  419.  Duty    of    partner    to    keep 

verse  to  those  of  firm.  books  of  account. 

Sec.  416.    Good  Faith  in  Dealing  with  Partners. 

Case  No.  574.    Jones  v.  Dexter,  130  Mass.  380. 

Facts:  A  bill  was  brought  by  Jones  against  Dexter 
and  two  other  parties  for  a  settlement  of  the  partnership 
affairs.  Jones  and  Dexter  had  been  partners  but  the 
firm  had  been  dissolved  and  Jones  had  become  insolvent. 
Dexter  some  years  later  in  order  to  close  up  the  firm's 
affairs  advertised  an  auction  sale  of  all  the  remaining 
assets  of  the  firm.    Among  these  was  an  interest  in  a 

841 


842  PARTNERSHIPS 

whaling  vessel  which  had  been  destroyed.  This  interest 
was  offered  for  sale  and  one  LeBaron  bid  $12  and  the  in- 
terest was  sold  to  him  for  that  price.  It  appeared  that 
LeBaron  was  acting  for  Dexter  and  assigned  his  interest 
to  Dexter.  Later  the  sum  of  $1,564.00  was  paid  for  the 
interest  in  the  vessel  by  the  commissioners  on  the  "  Ala- 
bama Claims.' '  The  complainant  claimed  as  a  partner 
a  share  in  this  sum. 

Point  Involved:  The  good  faith  that  is  necessary  for 
each  partner  to  show  toward  the  other. 

Soule,  J. : '  *  The  general  rule  is  familiar  that  a  trustee 
will  not  be  permitted  to  make  a  profit  out  of  the  trust 
property;  and  that  if  he  purchases  it,  even  at  a  public 
auction,  he  will  hold  it  for  the  benefit  of  the  cestui  que 
trust,  and,  if  any  profit  is  made  upon  it,  he  must  account 
for  it  as  trustee.  Perry  on  Trust,  Sec.  427.  This  rule 
applies  to  cases  where  one  deals  with  property  as  agent 
for  another,  and  to  all  those  cases  in  which  confidence  is 
reposed,  and  one  has  it  in  his  power,  in  a  secret  manner, 
for  his  own  advantage  to  sacrifice  the  interests  which 
have  been  entrusted  to  him.  Story  Eq.  Jur.  Sec.  323.  In 
all  such  cases,  the  cestui  que  trust  has  his  election  to 
avoid  the  transaction  which  was  intended  to  benefit  the 
trustee,  and  to  treat  the  subject  matter  of  the  trust  as 
if  no  change  had  been  made  in  its  situation,  so  long  as 
the  trustee  has  not  disposed  of  the  property  to  a  bona 
fide  holder  for  value.    Wyman  v.  Hooper,  2  Gray,  141. 

"The  application  of  this  principle  to  the  case  at  bar 
is  plain.  The  defendant  Dexter  was  acting  for  himself 
and  his  former  partner,  and  the  assignee  in  bankruptcy 
of  his  partner,  in  closing  up  the  affairs  of  the  partner- 
ship. When  he  undertook  to  sell  the  interest  of  the  part- 
nership in  the  Ocean  Rover  and  its  outfits  and  catchings, 
he  had  no  right,  as  against  the  other  parties  in  interest, 
to  make  a  secret  arrangement  by  which  a  stranger  should 
purchase  the  interest  for  him.  And  when  the  purchase 
was  made  in  accordance  with  that  secret  arrangement, 


MUTUAL  OBLIGATIONS  843 

and  the  interest,  after  being  conveyed  to  the  purchaser, 
was  conveyed  by  him  to  Dexter  in  pursuance  of  the  se- 
cret arrangement,  Dexter  held  it  for  the  benefit  of  the 
partnership,  and  not  for  his  personal  benefit. 

"We  have  assumed,  in  what  we  have  said,  that  such 
secret  arrangement  was  made  and  acted  on,  because  we 
are  of  opinion  that  the  agreed  facts  and  evidence  call  for 
a  finding  to  that  effect.  Such  finding  is  a  sufficient  foun- 
dation for  a  decree  against  the  defendants. 

"It  has  already  been  decided  that,  inasmuch  as  the 
debts  which  the  plaintiff  owed  when  he  went  into  insolv- 
ency have  been  paid,  and  his  assignee  in  insolvency  dis- 
claims all  interest  in  the  subject  matter  of  the  suit,  and 
assents  to  the  maintenance  of  the  bill,  the  plaintiff,  if 
anyone,  is  entitled  to  the  relief  asked  for.  Jones  v. 
Dexter,  125  Mass.  469.  The  result  is,  that  the  decree 
appealed  from  must  be  affirmed.' ' 

Question  574 :  (1.)  What  did  the  partner  do  in  this  case  that 
was  a  wrong  against  the  other  partner?  What  remedy  did  the 
wronged  partner  have  ? 

(2.)  "Four  partners  established  a  partnership  for  refin- 
ing sugar;  one  of  them  is  a  wholesale  grocer  and  from  his 
business  is  peculiarly  cognizant  with  the  variations  in  the  sugar 
market,  and  has  great  skill  in  buying  sugar  at  a  right  and  proper 
time  for  the  business.  Accordingly  the  business  of  selecting 
and  purchasing  the  sugar  for  the  sugar  refinery  is  entrusted  to 
him.  *  *  *  Having  according  to  his  skill  and  knowledge 
bought  sugar  at  a  time  when  he  thought  it  likely  to  rise,  and  it 
having  risen  and  the  firm  being  in  want  of  some,  he  sells  his  own 
sugars  to  the  firm  without  letting  the  partners  know  that  it  was 
his  own  sugar  that  was  sold. ' '  Are  the  partners  entitled  to  this 
profit?     Bentley  v.   Craven,   18  Beav.    (Eng.)    75. 

Sec.  417.    Acquisition  of  Interests  Adverse  to  Those 

of  Firm. 

Case  No.  575.    Mitchell  v.  Eeed,  61  N.  Y.  123. 
Facts:    Suit  brought  to  have  a  certain  lease  held  by 
one  partner  to  be  declared  the  property  of  the  partner- 


844  PARTNERSHIPS 

ship.  The  plaintiff  and  the  defendant  had  entered  into 
a  co-partnership  in  the  hotel  business  operating  the  Hoff- 
man House  in  New  York.  The  partnership  expired  by 
its  terms  on  May  1,  1871,  at  which  time  also  the  lease  on 
the  property  terminated.  The  firm  spent  large  sums  of 
money  in  improving  the  property  and  thereby  increased 
the  rental  value  very  much.  In  1869  the  defendant  with- 
out the  knowledge  of  his  co-partners  obtained  a  new 
lease  of  the  Hoffman  House  in  his  own  name  for  a  term 
commencing  May  1,  1871,  when  the  old  lease  expired. 
Plaintiff  contends  that  his  acquisition  of  the  lease  should 
be  deemed  for  the  benefit  of  the  firm  as  a  whole  and  that 
he  should  be  held  as  a  trustee  for  the  firm. 

Eael,  C. :  *  *  The  relation  of  partners  with  each  other  is 
one  of  trust  and  confidence.  Each  is  the  general  agent  of 
the  firm,  and  is  bound  to  act  in  entire  good  faith  to  the 
other.  The  functions,  rights  and  duties  of  partners  in 
a  great  measure  comprehend  those  both  of  trustees  and 
agents,  and  the  general  rules  applicable  to  such  charac- 
ters are  applicable  to  them.  Neither  partner  can,  in  the 
business  and  affairs  of  the  firm,  clandestinely  stipulate 
for  a  private  advantage  to  himself.  Every  advantage 
which  he  can  obtain  in  the  business  of  the  firm  must  inure 
to  the  benefit  of  the  firm.  These  principles  are  ele- 
mentary, and  are  not  contested.  Story,  No.  174,175 ;  Col- 
Iyer,  181,  182.  In  has  been  frequently  held  that  when 
one  partner  obtains  the  renewal  of  a  partnership  lease 
secretly,  in  his  own  name,  he  will  be  held  a  trustee  for 
the  firm  as  to  the  renewed  lease.  It  is  conceded  that  this 
is  the  rule  where  the  partnership  is  for  a  limited  term, 
and  either  partner  takes  a  lease  commencing  within  the 
term;  but  the  contention  is  that  the  rule  does  not  apply 
where  the  lease  thus  taken  is  for  a  term  to  commence 
after  the  expiration  of  the  partnership  by  its  own  limi- 
tation, and  whether  this  contention  is  well  founded  is 
one  of  the  grave  questions  to  be  determined  upon  this 
appeal. 

"It  is  not  necessary,  in  maintaining  the  right  of  the 


MUTUAL  OBLIGATIONS  845 

plaintiff  in  this  case,  to  hold  that  in  all  cases  a  lease  thus 
taken  shall  inure  to  the  benefit  of  the  firm,  but  whether, 
upon  the  facts  of  this  case,  these  leases  ought  to  inure 
to  the  benefit  of  this  firm.  I  will  briefly  allude  to  some 
of  the  prominent  features  of  this  case.  These  parties  had 
been  partners  for  some  years;  they  were  equal  in  dig- 
nity, although  interest  differed.  The  plaintiff  was  not 
a  mere  subordinate  in  the  firm,  but  so  far  as  appears, 
just  as  important  and  efficient  in  its  affairs  as  the  defend- 
ant. They  procured  the  exclusive  control  of  the  leases  of 
the  property  to  terminate  May  1, 1871,  and  their  partner- 
ship was  to  terminate  on  the  same  day.  They  expended 
many  thousand  dollars  in  fitting  up  the  premises,  a  portion 
thereof  after  the  new  leases  were  obtained,  and  they  ex- 
pended a  very  large  sum  in  furnishing  them.  By  their 
joint  skill  and  influence  they  built  up  a  very  large  and 
profitable  business,  which  largely  enhanced  the  rental 
value  of  the  premises.  More  than  two  years  before  the 
expiration  of  their  leases  and  of  their  partnership,  the 
defendant  secretly  procured,  at  an  increased  rent,  in  his 
own  name,  the  new  leases,  which  are  of  great  value.  Al- 
though the  plaintiff  was  in  daily  intercourse  with  the  de- 
fendant, he  knew  nothing  of  these  leases  for  about  a  year 
after  they  had  been  obtained.  There  is  no  proof  that 
the  lessors  would  not  have  leased  to  the  firm  as  readily 
as  to  the  defendant  alone.  The  permanent  fixtures,  by 
the  terms  of  the  leases  at  their  expiration,  belonged  to 
the  lessors.  But  the  movable  fixtures  and  the  furniture 
were  worth  vastly  more  to  be  kept  and  used  in  the  hotel 
than  to  be  removed  elsewhere.  Upon  these  facts  I  can 
entertain  no  doubt,  both  upon  principle  and  authority, 
that  these  leases  should  be  held  to  inure  to  the  benefit  of 
the  firm.  If  the  defendant  can  hold  these  leases,  he  could 
have  held  them  if  he  had  secretly  obtained  them  immedi- 
ately after  the  partnership  commenced,  and  had  con- 
cealed the  fact  from  the  plaintiff  during  the  whole  term. 
There  would  thus  have  been,  during  the  whole  term,  in 
making  permanent  improvements  and  in  furnishing  the 
hotel,  a  conflict  between  his  duty  to  the  firm  and  his  self- 


846  PARTNERSHIPS 

interest.  Large  investments  and  extensive  furnishing 
would  add  to  the  value  of  his  lease,  and  defendant  would 
be  under  constant  temptation  to  make  them.  While  he 
might  not  yield  to  the  temptation,  and  while  proof  might 
show  that  he  had  not  yielded,  the  law  will  not  allow  a 
trustee  thus  situated  to  be  thus  tempted,  and  therefore 
disables  him  from  making  a  contract  for  his  own  benefit. 
Terwilliger  v.  Brown,  44  N.  Y.  237,  and  cases  cited. 

"It  matters  not  that  the  Court  at  special  term  found 
upon  the  evidence  that  the  improvements  were  judicious 
and  prudent  for  the  purposes  of  the  old  term.  The  plain- 
tiff was  entitled  to  the  unbiased  judgment  of  the  defend- 
ant as  to  such  improvements,  uninfluenced  by  his  private 
and  separate  interest.  But  further,  the  parties  owned 
together  a  large  amount  of  hotel  property  in  the  form  of 
furniture  and  supplies,  considerably  exceeding,  as  I  in- 
fer, $100,000  in  value.  Assuming  that  the  partnership 
was  not  to  be  continued  after  the  1st  day  of  May,  1871, 
this  property  was  to  be  sold,  or  in  some  way  disposed  of 
for  the  benefit  of  the  firm  and  each  partner  owed  a  duty 
to  the  firm  to  dispose  of  it  to  the  best  advantage.  Neither 
could,  without  the  violation  of  his  duty  to  the  firm, 
place  the  property  in  such  a  situation  that  it  would  be 
sacrificed,  or  that  he  could  purchase  it  for  his  separate 
benefit  at  a  great  profit.  Much  of  this  property,  such  as 
mirrors,  carpets,  etc.,  was  fitted  for  use  in  this  hotel,  and 
it  is  quite  manifest  that  all  of  it  would  sell  better  with  a 
lease  of  the  hotel,  than  it  would  to  be  removed  therefrom. 
It  is  clear  that  one  or  both  of  these  parties  could  obtain 
advantageous  leases  of  the  hotel  for  a  term  of  years,  and 
hence,  if  the  parties  had  determined  to  dissolve  their 
partnership,  it  would  have  been  a  measure  of  ordinary 
prudence  to  have  obtained  the  leases  and  transferred  the 
property  with  the  leases  as  the  only  mode  of  realizing  its 
value.  This  was  defeated  by  the  act  of  the  defendant, 
if  he  is  allowed  to  hold  these  leases,  and  thus  place  him- 
self in  a  position  where  the  property  must  be  largely 
sacrificed  or  purchased  by  himself  at  a  great  advantage. 
This  the  law  will  not  tolerate. 


MUTUAL  OBLIGATIONS  847 

"It  has  long  been  settled  by  adjudications,  that  gen- 
erally when  one  partner  obtains  the  renewal  of  a  part- 
nership lease  secretly,  in  his  own  name,  he  will  be  held  a 
trustee  for  the  firm,  in  the  renewed  lease,  and  when  the 
rule  is  otherwise  applicable,  it  matters  not  that  the  new 
lease  is  upon  different  terms  from  the  old  one,  or  for 
larger  rent,  or  that  the  lessor  would  not  have  leased  to 
the  firm.  The  law  recognizes  the  renewal  of  a  lease  as 
a  reasonable  expectancy  of  the  tenants  in  possession  and 
in  many  cases  protects  this  expectancy  as  a  thing  of  value. 
I  will  briefly  notice  a  few  of  the  cases  upon  this  subject. 
(Here  the  Court  reviews  numerous  authorities.)    *    *    * 

a*  *  *  j  therefore  conclude  that  it  makes  no  differ- 
ence that  these  leases  were  obtained  for  a  term  to  com- 
mence after  the  partnership,  by  its  own  limitation,  was 
to  terminate.  I  can  find  no  authority  holding  that  it  does, 
and  there  is  no  principle  sustaining  the  distinction 
claimed.  The  defendant  was  in  possession  as  a  member 
of  the  firm,  and  the  firm  owned  the  good  will  for  a  re- 
newal which  ordinarily  attaches  to  the  possession.  By 
his  occupancy,  and  the  payment  of  the  rent,  he  was 
brought  into  intimate  relations  with  the  lessors;  he  be- 
came well  acquainted  with  the  value  of  the  premises,  and 
he  took  advantage  of  his  position  during  the  partner- 
ship, secretly  to  obtain  the  new  leases.  He  must  hold 
them  for  the  firm. ' ' 

Question  575:  The  defendant  in  this  case  conceded  what  with 
reference  to  renewals  of  partnership  leases  ?  How  did  he  seek  to 
distinguish  this  case  from  the  rule  admitted  by  him?  What  did 
the  Court  hold  in  answer  thereto?  Show  why  the  acquisition  of 
the  lease  in  this  case  might  be  contrary  to  the  other  partner's 
interest. 

Sec.  418.    Obligation  Not  to  Compete  with  Firm  or  De- 
vote His  Time  to  Other  Interests. 

Case  No.  576.    Metcalf  v.  Bradshaw,  145  HI.  124. 
Facts:    Complainant  asks  an  accounting  against  de- 


848  PARTNERSHIPS 

fendant  alleging  that  they  were  partners  in  the  practice 
of  the  law  under  an  agreement  that  each  should  give  his 
time,  talents  and  strength  in  prosecuting  the  interests  of 
the  firm.  During  the  term  of  the  partnership  the  defend- 
ant was  appointed  and  acted  as  executor  of  several  es- 
tates receiving  certain  fees  therefor  which  complainant 
claims  to  be  partnership  earnings. 

Point  Involved:  The  duty  of  the  partner  to  devote  his 
time  to  the  business  of  the  partnership  and  not  to  com- 
pete with  it  or  enter  into  activities  derogatory  to  his  at- 
tention to  the  interests  of  the  firm.  Whether  in  this  case, 
specifically,  acting  as  executor  was  practicing  law,  the 
fees  for  which  were  to  be  considered  partnership  earn- 
ings. 

Bailey,  C.  J.:     "*     *     * 

"Whether  the  administration  of  these  estates  is  to  be 
regarded  as  firm  business,  and  the  commissions  received 
by  the  defendant  therefor  as  a  part  of  the  proceeds  or 
earnings  of  the  business,  must  depend  chiefly,  if  not 
wholly,  upon  the  construction  to  be  placed  upon  the  part- 
nership articles.  By  those  articles  the  complainant  and 
defendant  associated  themselves  together  'for  the  pur- 
pose of  practicing  law/  and  they  mutually  promised  to 
give  their  time,  talents,  and  strength  'to  the  prosecution 
of  the  interest  of  the  firm.'  Each  pledged  himself  not 
to  become  a  candidate  for  any  political  office,  so  as  to  be- 
come involved  in  politics,  during  the  continuance  of  the 
firm,  except  by  mutual  consent :  and  it  was  agreed  that 
any  omission  to  keep  and  observe  these  promises  and 
agreements  by  either  party  should  justify  the  other  in 
dissolving  the  partnership.  We  think  it  too  plain  for 
argument  that  accepting  an  appointment  as  executor  or 
administrator  of  a  deceased  person,  and  acting  as  such, 
does  not,  as  the  term  is  ordinarily  understood,  pertain 
to  the  practice  of  law.  Persons  accepting  and  performing 
the  duties  of  trusts  of  that  character  need  not  be  lawyers, 
and,  as  is  well  known,  those  who  are  appointed  as  execu- 
tors or  administrators  are,  in  the  great  majority  of  cases, 


MUTUAL  OBLIGATIONS  849 

men  who  do  not  belong  to  the  profession.  Their  duties 
are  usually  of  a  business,  rather  than  a  professional, 
character.  True  the  administration  of  estates  frequently 
requires  legal  advice,  and  often  involves  more  or  less  of 
litigation,  but  substantially  the  same  may  be  said  of  all 
other  business  pursuits,  and  especially  of  all  positions 
involving  the  execution  of  trusts.  But  men  are  ordinarily 
appointed  to  execute  trusts  because  of  the  confidence  the 
donor  of  the  trust  has  in  the  honor,  integrity,  and  busi- 
ness capacity  of  the  appointee,  rather  than  because  of  his 
knowledge  of  legal  principles,  or  his  ability  to  carry  on 
litigation  with  success.  At  all  events,  the  execution  of 
trusts  is  not,  and  never  has  been,  regarded  as  a  part  of 
the  duties  peculiarly  pertaining  to  the  legal  profession, 
or  as  constituting  a  part  of  what  is  ordinarily  understood 
as  'the  practice  of  the  law.'  It  cannot,  therefore,  with 
any  propriety,  be  claimed  that  the  business  transacted  by 
the  defendant  in  his  trust  capacity,  as  executor  or  admin- 
istrator of  the  estates  in  question,  was  a  part  of  the  firm 
business,  within  the  contemplation  of  the  copartnership 
articles,  or  that  the  commissions  realized  by  him  from 
the  execution  of  such  trusts  constituted  a  part  of  the 
earnings  or  profits  of  the  firm. 

"We  are  not  unmindful  of  the  well-settled  rule  that 
a  partner  will  not  ordinarily  be  permitted,  for  his  own 
profit,  to  enter  into  business  in  competition  with  his  firm. 
Thus  he  cannot,  without  the  consent  of  his  copartners, 
embark  in  a  business  that  will  manifestly  conflict  with  the 
interests  of  his  firm.  Nor  can  he  clandestinely  use  the 
partnership  property  or  funds  in  speculations  for  his 
own  private  advantage,  without  being  required  to  account 
to  his  copartners  for  the  property  and  funds  thus  used, 
and  for  the  profits.  The  general  rule  being  that  each 
partner  shall  devote  his  time,  labor,  and  skill  for  the 
benefit  of  the  firm,  he  cannot  purchase  for  his  own  use, 
and  for  the  purpose  of  private  speculation  and  profit, 
articles  in  which  the  firm  deals,  and,  if  he  does  so,  the 
profits  arising  therefrom  may  be  claimed  by  the  copart- 
ners as  belonging  to  the  firm.    5  Wait,  Act  &  Def.  125. 


850  PARTNERSHIPS 

Thus,  as  said  in  1  Bates,  Partn.  Sec.  306:  'If  a  partner 
speculate  with  the  firm  funds  or  credit  he  must  account  to 
his  copartners  for  the  profits,  and  bear  the  whole  losses 
of  such  unauthorized  adventures  himself;  and  if  he  go 
into  competing  business,  depriving  the  firm  of  the  skill, 
time  and  diligence  or  fidelity  he  owes  to  it,  so  he  must 
account  to  the  firm  for  the  profits  made  in  it.  And  a 
managing  partner  will  be  enjoined  from  carrying  on  the 
same  business  for  his  own  benefit. '  But  the  same  author 
says,  a  little  further  on,  that  a  partner  may  traffic  outside 
of  the  scope  of  the  business  for  his  own  benefit.  So, 
also,  in  Lindl.  Partn.  312,  the  rule  is  laid  down  as  fol- 
lows :  '  Where  a  partner  carries  on  a  business  not  con- 
nected with  or  competing  with  that  of  his  firm,  his  part- 
ners have  no  right  to  the  profits  he  thereby  makes,  even 
if  he  has  agreed  not  to  carry  on  any  separate  business. ' 

"•  *  *  In  view  of  all  the  evidence,  we  are  disposed 
to  hold  that  the  only  proper  result  is  the  one  reached  by 
the  Circuit  Court  in  its  decree,  and  the  judgment  of  the 
Appellate  Court,  affirming  the  decree,  will  be  affirmed." 

Question  576:  (1.)  Was  acting  as  executor  by  the  defend- 
ant practicing  law  requiring  an  accounting  of  the  fees  thereby 
earned  ? 

(2.)  Did  the  Court  think  the  defendant  was  violating  his  duty 
in  acting  as  executor  ?   "Why  ? 

(3.)  If  a  partner  engages  in  a  competing  business  will  his 
profits  be  regarded  as  the  profits  of  the  firm  ? 

(4.)  If  he  engages  in  a  non-competing  business  and  thereby 
neglects  his  partnership  affairs  will  the  profits  he  thereby  makes 
be  considered  partnership  earnings?  In  such  a  case  would  he 
be  enjoined  from  carrying  on  such  business? 

(5.)  A.  uses  $500  of  the  firm  money  to  put  into  a  venture  for 
his  own  benefit  and  $500  to  put  into  another  venture  for  his  own 
benefit.  In  the  one  he  makes  a  profit  of  $250.  In  the  other  he 
loses  $250.  How  much  money  must. A.  produce  as  partnership 
money  ? 

Sec.  419.    Duty  of  Partner  to  Keep  Books  of  Account. 

Case  No.  577.    Webb  v.  Fordyce,  55  la.  11. 

Facts:    See  the  opinion. 

Point  Involved :   See  the  first  paragraph  of  the  opinion. 


MUTUAL  OBLIGATIONS  851 

Rothrock,  J.:  "The  sole  question  contended  by  ap- 
pellant in  this  appeal  is  whether  the  defendant  should 
be  held  liable  for  such  of  the  partnership  funds  as  came 
into  his  hands,  and  for  which  he  could  render  no  account 
and  as  to  which  he  could  but  testify  generally  that  he 
did  not  convert  the  same  to  his  own  use. 

*  *  Each  checked  out  the  funds  of  the  partner- 
ship at  will,  upon  his  own  check,  and  it  was  the  duty  of 
each  to  account  to  the  firm  for  what  he  drew  out.  If  the 
defendant  drew  checks  and  obtained  the  money  thereon 
its  expenditure  was  a  matter  peculiarly  within  his  own 
knowledge.  The  plaintiff  was  entitled  to  some  showing 
more  than  a  general  statement  that  the  proceeds  of  the 
checks  were  used  for  partnership  purposes.  'All  part- 
ners having  any  charge  of  the  business  of  the  firm  are 
bound  to  keep  constantly,  regular,  intelligible  and  accu- 
rate accounts  of  all  the  business,  and  to  give  all  the  part- 
ners at  all  times  access  to  them  and  to  the  means  of 
verifying  them.'  Parsons  on  Partnership,  p.  527. — 
Affirmed." 

Question  577:  Enlarge  upon  the  duty  of  the  partner  to  keep 
accounts  and  the  results  from  a  failure  to  do  so. 


CHAPTER    SEVENTY-EIGHT 

SUNDRY  RIGHTS  OF  PARTNERS  IN  GOING 
CONCERN 


§  420.  Right  of  partner  to  salary.  §  423.  Right  to  sue  firm. 

§  421.  Right  to  compensation  for  §  424.  Right  to  'contribution  and  in- 
extra  services.  demnity. 

§  422.  Right  to  interest  on  capital  §  425.  Right  of  majority  to  govern, 
invested. 


Sec.  420.    Right  of  Partner  to  a  Salary. 

(Note:  The  right  of  a  partner  to  a  salary  depends  entirely 
on  agreement.  There  is  no  right  to  a  salary  unless  it  is  so  agreed 
between  the  partners.  See  the  next  case  for  rules  governing  the 
right  to  have  compensation  over  and  above  a  division  of  the 
profits.) 

Sec.  421.    Right  to  Compensation  for  Extra  Services. 

Case  No.  578.     Lindsay  v.  Stranahan,  129  Pa.  St.  635. 

Per  Curiam  :  ' '  There  is  but  a  single  question  in  this 
case:  Is  J.  K.  Lindsey,  the  plaintiff,  entitled  to  compen- 
sation for  his  services  as  a  partner?  It  is  conceded  that 
there  was  no  express  contract  that  he  should  be  paid  for 
such  services,  and  there  is  no  principle  better  settled 
than  that  the  law  will  not  imply  a  contract  in  such  cases. 
The  reason  is  that  the  partner  is  but  attending  to  his 
own  affairs.  This  rule  is  inexorable ;  as  much  so  as  that 
between  parent  and  child.  Were  it  otherwise,  we  might 
have  a  contest  between  the  partners  upon  the  settlement 

852 


SUNDRY  RIGHTS  OF  PARTNERS  853 

of  every  partnership  account,  as  to  the  value  of  their 
respective  services.  It  is  true  this  principle  may  work 
hardship  in  particular  cases;  almost  every  general  rule 
does,  but  that  is  a  weak  argument  against  the  soundness 
of  the  rule.  When  the  co-partnership  agreement  con- 
templates that  one  partner  shall  manage  the  business, 
or  do  more  than  his  share  of  the  work,  it  is  easy  to  pro- 
vide for  his  compensation  in  the  agreement  itself ;  and  if 
no  such  stipulation  is  then  made,  as  before  said,  the  law 
will  not  imply  one.  Even  where  a  liquidating  or  sur- 
viving partner  settles  up  the  business,  it  has  been  repeat- 
edly held  that  he  is  not  entitled  to  compensation  for  do- 
ing so,  although,  in  such  case,  he  performs  all  the  service : 
Beatty  v.  Wray,  19  Pa.  516,  57  Am.  Dec.  677;  Brown  v. 
McFarland,  41  Pa.  129,  80  Am.  Dec.  598;  Gyger's  Appeal, 
62  Pa.  73,  1  Am.  Eep.  382;  Brown's  Appeal,  89  Pa.  139. 
"Judgment  affirmed." 

Question  578:    What  did  the  Court  decide  in  this  case? 

Sec.  422.    Right  of  Partner  to  Interest  on  Capital  In- 
vested. 

(Note:  A  partner  puts  in  the  capital  for  the  profits  he  ex- 
pects to  make  in  the  venture.  Hence,  there  is  no  right  to  inter- 
est unless  it  is  agreed  upon.) 

Sec.  423.    Right  of  Partner  to  Sue  Other  Partners. 

Case  No.  579.     Bullard  v.  Kennedy,  10  Cal.  60. 

Facts:  Suit  at  law  by  an  assignee  of  a  partner  against 
his  co-partners. 

Point  Involved:  Whether  a  partner  can  sue  his  co- 
partners in  a  court  at  law  or  must  go  into  equity  and 
ask  an  accounting. 

Burnett,  J. :  "  The  only  question  arising  in  the  case 
is,  whether  the  plaintiff  can  sue  in  this  form? 

"  There  was  nothing  in  the  constitution  of  this  com- 


854  PARTNERSHIPS 

pany  which  regulated  the  remedies  of  the  shareholders, 
as  between  themselves,  and,  therefore,  the  general  law  of 
partnership  must  prevail  (Coll.  on  Partn.,  Sec.  1115). 
There  having  been  no  final  settlement  of  the  partnership 
accounts,  and  no  balance  struck,  and  no  express  promise 
on  the  part  of  the  individual  members  to  pay  their  ascer- 
tained portion  of  this  amount  to  Sotzen  and  Goodnow, 
they  could  not  maintain  assumpsit.  As  they  could  not 
sue,  it  is  difficult  to  see  how  their  assignee  could  do  so. 
*     *     *     This  rule  rests  upon  three  grounds : 

"1.  The  technical  ground,  that  a  man  cannot,  at  the 
same  time,  in  the  same  suit,  be  both  plaintiff  and  a  de- 
fendant. 

"2.  Because  it  would  be  useless  for  one  partner  to 
recover  that  which,  upon  taking  a  general  account,  he 
might  be  compelled  to  refund ;  and  thus  a  multiplicity  of 
suits  be  permitted,  where  one  would  answer. 

"3.  The  contrary  rule  would  defeat  the  equitable 
right  of  the  other  partners  to  set-off  their  advances 
against  those  of  plaintiff,  and  would  force  them  to  first 
pay  the  amount,  and  then  rely  upon  the  individual  re- 
sponsibility of  the  partner  for  a  return  of  his  pro- 
portion.' ! 

Question  579:  (1.)  Can  a  partner  sue  his  co-partners  in  a 
court  at  law  on  a  partnership  account? 

(2.)     Does  the  Court  suggest  any  exceptions? 
(3.)     What  are  the  grounds  given  by  the  Court? 
(4.)     What  is  the  partner's  remedy? 

Sec.  424.    Right  of  Partner  to  Contribution. 

(Note:  A  partner  has  a  right  to  contribution  from  his  co- 
partners for  all  expenses  incurred  by  him  in  the  exercise  and 
protection  of  the  firm  business.) 

Sec.  425.    Right  of  Majority  to  Govern. 

Case  No.  580.     Markle  v.  Wilbur  et  al.,  200  Pa.  457. 
Facts:    Bill  for  an  accounting.    The  bill  set  forth  a 


RIGHT  OF  MAJORITY  TO  GOVERN  855 

partnership  among  several  parties  for  the  purpose  of 
mining  coal  upon  extensive  lands  leased  by  the  firm.  The 
partnership  was  to  begin  January  1, 1890,  and  to  continue 
for  twenty  years.  Its  importance  and  extent  is  shown 
by  the  fact  that  during  the  first  five  years  over  $1,000,000. 
The  bill  alleges  that  expenditures  were  made  and  other 
acts  done  without  authority.  Defendants  answer  that  the 
majority  members  consented  to  such  acts.  A  part  of  the 
head  note  to  the  case  reads  as  follows : 

"The  shares  were  divided  into  sixteenths,  and  the  term 
of  the  partnership  was  for  twenty  years.  On  a  bill  in 
equity  by  two  of  the  partners  representing  three  and  one- 
half  sixteenths  against  the  other  partners  for  an  account, 
it  appeared  that  one  of  the  plaintiffs  was  a  woman,  and 
the  other  was  engaged  in  banking  in  a  distant  state. 
Three  of  the  defendants  were  practical  men  in  the  coal 
business  and  one  of  them  who  acted  as  manager  or  super- 
intendent was  an  educated  mining  engineer  of  large 
experience  in  his  profession.  The  evidence  showed  no 
bad  faith  or  fraud  in  the  management  of  the  business. 
The  plaintiffs  claimed  that  the  defendants  should 
account  for  a  very  large  expenditure  on  a  tunnel  over  a 
mile  long,  for  the  cost  of  a  dwelling  house  for  the  super- 
intendent, for  a  salary  of  $10,000  a  year  of  an  assistant 
superintendent,  and  for  various  other  matters  of  expen- 
diture. The  evidence  showed  that  the  large  expenditure 
for  the  tunnel  was  due  to  unforeseen  conditions  in  the 
strata,  impossible  to  determine  beforehand;  that  the 
house  was  occupied  by  the  superintendent  who  paid  an 
annual  rental  which  equaled  six  per  cent  of  its  cost.  As 
to  other  items  explanation  was  made  tending  to  show 
that  they  were  necessary  to  carry  on  the  business  suc- 
cessfully and  for  a  profit." 

Point  Involved:  The  power  of  the  majority  in  a  part- 
nership to  govern  the  conduct  of  the  business. 

Dean,  J.:    "*     *     *    The  rule  laid  down  in  Story 
on  Partnership,  Sec.  123,  is  stated  thus : 
"  'But  another  question  may  arise,  and  that  is,  whether, 


856  PARTNERSHIPS 

in  case  of  partnership,  the  majority  is  to  govern  in  case 
of  a  diversity  of  opinion  between  the  partners  as  to  the 
partnership  business  and  the  conduct  thereof,  or  whether 
one  partner  can,  by  his  dissent,  arrest  the  partnership 
business,  or  suspend  the  ordinary  powers  and  authority 
of  the  other  partners  in  relation  thereto,  against  the  will 
of  the  majority  where  there  is  no  stipulation  in  the  part- 
nership articles  to  control  or  vary  the  result  (for  if  there 
be  any  stipulation  that  ought  to  govern) ;  the  general  rule 
would  seem  to  be,  that  each  partner  has  an  equal  voice, 
however  unequal  the  shares  of  the  respective  parties  may 
be;  and  the  majority,  acting  fairly  and  ''bona  fide,' '  have 
the  right  and  authority  to  conduct  the  partnership  busi- 
ness within  the  true  scope  thereof,  and  dispose  of  the 
partnership  property,  notwithstanding  the  dissent  of  the 
minority. ' 

"Then  our  own  view  of  the  law  as  stated  by  our  late 
Brother  Williams,  in  Clarke  v.  Slate  Valley  Eailroad 
Company,  136  Pa.  408,  is  as  follows : 

"  'This  leads  us  to  consider  the  manner  in  which  the 
business  of  a  firm  must  be  conducted.  The  firm  must 
have  its  origin  in  the  mutual  confidence  reposed  by  the 
persons  who  comprise  it,  in  each  other's  skill,  integrity 
and  capacity.  Its  members  are  bound  by  the  nature  of 
their  compact  to  the  exercise  of  good  faith  towards  each 
other  and  the  common  enterprise  for  which  they  have 
united.  Differences  of  opinion  about  questions  of  admin- 
istration are  to  be  anticipated. 

"  'It  would  be  unreasonable  to  expect  that  all  mem- 
bers of  a  partnership  should  see  alike  upon  all  questions, 
and,  for  that  reason  a  mere  difference  of  opinion  about 
the  best  thing  to  do,  or  the  best  way  of  doing  it,  does 
not  necessarily  work  a  dissolution,  or  send  the  business 
and  assets  of  the  firm  to  a  receiver.  It  was  the  rule  of 
the  common  law  that  the  contracts  of  partnership  must 
be  governed,  like  other  agreements,  by  the  principles 
of  natural  law  and  justice.  It  has  accordingly  been  held 
that,  where  a  firm  consists  of  more  than  two  persons,  the 
majority,  acting  fairly  and  in  good  faith,  may  direct  the 


RIGHT  OF  MAJORITY  TO  GOVERN  857 

conduct  of  its  affairs  as  long  as  they  keep  within  the 
purpose  and  scope  of  the  partnership:  2  Bouvier's  Inst., 
Sec.  1454;  Story  on  Part.,  Sec.  123.  In  such  case,  the 
minority  must  yield,  so  long  as  the  majority  do  not 
transcend  or  pervert  the  powers  with  which  the  firm  has 
been  invested.  If  the  number  of  partners  should  in  any 
given  case  be  an  even  number  and  they  should  be  evenly 
divided  in  opinion,  with  no  provision  for  such  a  contin- 
gency in  their  articles,  then  it  may  be  that,  as  to  that 
subject,  the  power  of  the  firm  to  act  is  suspended  so  long 
as  the  even  division  continues ;  and,  if  the  subject  be  one 
upon  which  action  is  essential  to  the  purposes  of  the  part- 
nership, such  disagreement  might  work  a  dissolution  by 
rendering  the  further  prosecution  of  the  common  enter- 
prise impossible.  The  same  consequences  could  not  flow, 
however,  from  the  dissent  of  a  minority,  because,  within 
the  purpose  of  the  partnership  and  for  the  promotion  of 
its  interests,  the  majority  have  the  right  to  control  '  " 
[The  Court  upholds  the  acts  of  the  majority.] 

Question  580:  To  what  extent  may  the  majority  in  a  partner- 
ship control? 

(2.)  How  is  the  majority  determined — by  the  number  of 
shares  held,  or  by  the  number  of  partners  ?  Is  the  rule  the  same 
as  in  the  case  of  stockholders  in  a  corporation  ? 

(3.)  This  partnership  being  of  a  very  extensive  character 
and  involving  a  big  amount  of  money,  do  you  think,  that  would 
justify  acts  by  the  majority  without  the  minority  consent,  which 
would  not  be  justified  in  a  smaller  concern? 


PART    XXIII 
THE  PARTNERSHIP  AND  THIRD  PERSONS 

Chapter  Seventy-Nine.    The  Power  of  the  Partner  to 

Bind  his  Partners. 

Chapter  Eighty.  Liability  of  Partner  for  Torts 

of  His  Co-partner. 

Chapter  Eighty-One.       The  Duration  of  the  Liability. 

Chapter  Eighty-Two.  Remedies  of  Partnership  Cred- 
itors in  Courts  of  Law. 

Chapter  Eighty-Three.    Rights  of  Creditors  of  Partners 

in  Courts  of  Equity  to  Firm 
and  Individual  Assets. 


CHAPTER    SEVENTY. NINE 

THE  POWER  OF  THE  PARTNER  TO  BIND  HIS 
PARTNERS 

§  426.  Introductory.  §  432.  Authority   to   mortgage   and 
§  427.  Authority  of  partner  to  pur-  pledge. 

chase  and  sell.  §  433.  Authority    to    pay    personal 
§  428.  Authority  of  partner  to  war-  debts      with      partnership 

rant.  property. 

§  429.  Authority  of  partner  to  bor-  §  434.  Authority  to  receive  notice. 

row  money.  §  435.  Authority    to    make    admis- 
§  430.  Authority  of  partner  to  sign  sions. 

commercial  paper, 
g  431.  Authority   to   settle,  release, 

receive  payment,  etc. 

858 


AUTHORITY  OF  PARTNER  859 

Sec.  426.    Introductory. 

(Note :  The  authority  of  the  partner  to  bind  the  other  part- 
ners is  a  question  of  agency  as  applied  to  a  particular  sort  of 
agreement.  Partners  are  agents  of  each  other,  and,  naturally,  as 
they  are  also  principals  and  co-owners  in  the  business,  the  author- 
ity that  each  has  from  the  other  is  apparently  large,  and  usually 
actually  so.  Powers  may  be  conferred  on  an  agent  expressly  and 
by  implication,  and,  as  far  as  third  persons  are  concerned  by 
giving  him  an  appearance  of  power.  The  power  may  be  con- 
ferred by  prior  act  or  subsequent  ratification.  In  studying  part- 
nership authority,  all  of  these  principles  are  to  be  applied.) 

Case  No.  581.    Judge  v.  Braswell,  76  Ky.  67. 

Facts:  Morris,  Machen  &  Co.  had  a  partnership 
agreement  for  mining  purposes,  and  "said  enterprise  is 
to  embrace  the  purchase  of  the  title  to  any  coal  or  mining 
lands  in  fee." 

Machen  purchased  without  specific  authority,  certain 
lands  in  the  name  of  himself  and  partners,  promising  to 
pay  a  certain  price  therefor.  The  other  partners  refused 
to  assent  to  the  deal  and  are  sued  by  the  sellers. 

Judge  Coper:  "•  *  *  It  seems  to  us  that  this 
language  is  clear  and  explicit,  and  that  the  purchase  and 
sale  of  lands  were  within  the  scope  of  the  partnership. 
But  the  articles  are  equally  explicit  that  no  member  of 
the  firm  and  no  number  of  them  less  than  the  whole  had 
authority  to  buy  lands  for  the  firm. 

"It  is  contended,  however,  that  the  purchase  of  lands 
being  within  the  scope  of  the  partnership,  each  member 
had  implied  authority  to  make  purchases  for  the  firm, 
and  that  whatever  may  have  been  the  rights  and  duties 
of  the  partners  inter  esse,  and  the  express  limitation 
upon  their  power  contained  in  the  written  agreement 
between  them,  third  persons  dealing  with  a  single  part- 
ner, without  notice  of  the  private  agreement  between 
them,  can  not  be  affected  by  it. 

"This  is  undoubtedly  true  as  to  commercial  partner- 
ships ;  but  it  is  a  rule  of  the  law  merchant  which  has  been 


860  PARTNERSHIPS 

adopted  into  the  common  law,  and  rests  for  its  support 
upon  the  custom  of  merchants  alone,  and  has  no  applica- 
tion to  non-commercial  partnerships. 

"Mr.  Collyer  says,  'The  law  of  partnership,  as  admin- 
istered in  England,  rests  on  a  foundation  composed  of 
three  materials — the  common  law,  the  law  of  merchants, 
and  the  Roman  law,'  and  he  traces  the  power  of  one  part- 
ner to  bind  his  co-partners  by  a  bill  of  exchange  to  the 
law  merchant.  Again  he  says,  'The  general  principle 
which  governs  all  partnerships  in  trade  is  this,  that  each 
individual  partner  constitutes  the  others  his  agents  for 
the  purpose  of  entering  into  all  contracts  for  him  within 
the  scope  of  the  partnership  concern,  and  consequently, 
that  he  is  liable  to  the  performance  of  all  such  contracts 
in  the  same  manner  as  if  entered  into  personally  by  him- 
self.'    (Collyer  on  Partnership,  103.) 

1 '  But  the  power  of  one  partner  thus  to  bind  his  co-part- 
ners rests  alone  upon  the  usage  of  merchants,  and  does 
not  amount  to  a  rule  of  law  in  any  other  than  commercial 
partnerships.     ( Story  on  Partnership,  Sec.  126. ) 

"In  non-commercial  partnerships  one  who  seeks  to 
hold  the  firm  bound  upon  a  contract  made  by  a  single 
member  must  be  able  to  show  either  express  authority,  or 
that  such  is  the  custom  and  usage  of  that  particular 
branch  of  business  in  which  the  firm  is  engaged,  or  such 
facts  as  will  warrant  the  conclusion  that  the  partner  had 
been  invested  by  his  co-partners  with  the  requisite 
authority,  the  distinction  being  that  in  commercial  part- 
nerships the  extent  of  a  partner's  power  to  bind  the  firm 
is  a  question  of  law,  while  the  power  of  a  partner  in  a 
non-commercial  firm  to  bind  his  co-partners  is  a  question 
of  fact. 

* '  Thus  the  business  of  a  commercial  partnership  being 
ascertained,  and  the  nature  of  the  contract  made  by  a 
single  member,  and  the  circumstances  attending  it  being 
known,  the  Court  may  generally  determine,  as  matter  of 
law,  whether  the  contract  was  within  the  scope  of  the 
implied  powers  of  a  partner.     Not  so,  however,  in  refer- 


AUTHORITY  OF  PARTNER  861 

ence  to  a  contract  made  by  a  member  of  a  non-commercial 
partnership. 

"A  partner  in  such  a  partnership  does  not  generally 
possess  power  to  bind  the  firm,  and  consequently,  the 
extent  of  his  powers  is  not  fixed  by  the  rules  of  law,  but 
each  case  is  left  to  be  decided  upon  its  particular  facts ; 
and  in  all  such  cases,  in  order  to  make  out  the  liability  of 
the  firm,  it  ought  to  be  made  out  affirmatively  by  the 
plaintiff  that  the  partner  had  power  to  make  the  contract 
in  question.  (Dickinson  v.  Valpy,  10  B.  &  C.  128;  Levy 
v.  Pyne  &  Richards,  41  E.  C.  L.  249;  Smith  v.  Sloan,  37 
Wisconsin,  289.) 

"In  the  cases  at  bar  the  authority  of  the  partner 
making  the  contract  is  not  shown.  The  partnership 
articles  show  that  no  such  authority  was  thereby  con- 
ferred; no  evidence  was  offered  to  prove  that  such 
authority  had  been  otherwise  delegated,  or  that  it  was 
usual  in  such  partnerships  for  one  partner  to  buy  land 
in  the  name  of  the  firm,  or  that  the  existence  of  such 
authority  was  necessary  in  order  to  carry  on  the  business 
for  which  the  partnership  was  created,  and  we  have  seen 
that  no  such  power  can  be  implied  from  the  mere 
existence  of  the  partnership. 

1 '  We  are  therefore  of  the  opinion  that  the  Court  erred 
in  rendering  judgment  against  the  appellants,  and  the 
judgment,  as  to  them,  is  reversed,  and  the  cause  is 
remanded  with  directions  to  dismiss  the  petition.'  ■ 

Question  581:  (1.)  "Where  the  firm  is  non-commercial  (non- 
trading)  what  must  a  third  person  show  in  order  to  hold  a 
partner  on  the  acts  of  the  other  partner? 

(2.)  What  does  Mr.  Collyer  give  as  the  foundation  of  Eng- 
lish partnership  law  ? 

(3.)  Does  a  member  of  a  commercial  or  trading  partnership 
have  greater  powers  to  bind  the  other  members  than  in  a  non- 
trading  firm?    Why? 

Sec.  427.    Authority  of  Partner  to  Purchase  and  Sell. 

Case  No.  582.    Bond  v.  Gibson  et  al.,  1  Campbell,  185. 
Point  Involved:    Authority  of  partner  in  trading  part- 


862  PARTNERSHIPS 

nership  to  purchase  goods  dealt  in  by  firm,  and  bind  the 
other  partner;  the  fact  that  the  partner  so  purchasing 
said  goods  appropriates  them  to  his  own  use,  immaterial. 

"Assumpsit  for  goods  sold  and  delivered.  It  appeared 
that  while  the  defendants  were  carrying  on  the  trade  of 
harness  makers  together,  Jephson  (one  of  the  defend- 
ants) bought  of  the  plaintiffs  a  great  number  of  bits  to 
be  made  up  into  bridles,  which  he  carried  away  himself ; 
but  that,  instead  of  bringing  them  to  the  shop  of  himself 
and  his  co-partner,  he  immediately  pawned  them  to  raise 
money  for  his  own  use. 

"G-azelee,  for  the  defendant,  Gibson,  contended  that 
this  could  not  be  considered  a  partnership  debt,  as  the 
goods  had  not  been  bought  on  the  partnership  account 
and  the  credit  appeared  to  have  been  given  to  Jephson 
only.  He  allowed  the  case  would  have  been  different, 
had  the  goods  once  been  mixed  with  the  partnership 
stock,  or  if  proof  had  been  given  of  former  dealings  upon 
credit  between  the  plaintiff  and  the  defendants. 

"Lord  Ellenborough.  Unless  the  seller  is  guilty  of 
collusion,  a  sale  to  one  partner  is  a  sale  to  the  co-partner- 
ship, with  whatever  view  the  goods  may  be  bought  and  to 
whatever  purpose  they  may  be  applied.  I  will  take  it 
that  Jephson  here  meant  to  cheat  his  co-partner ;  still  the 
seller  is  not  on  that  account  to  suffer.  He  is  innocent 
and  he  had  a  right  to  suppose  that  this  individual  acted 
for  the  partnership. ' ' 

Question  58$:  State  the  facts  and  what  the  Court  held  in 
this  case. 

Case  No.  583.    Lowman  v.  Sheets,  124  Ind.  417. 

Facts:  Templeton  and  Sheets  were  partners  in  con- 
ducting a  stock  farm  for  which  they  had  acquired  a  herd 
of  brood  mares.  Without  Sheet's  knowledge,  Templeton 
purported  to  sell  the  entire  herd  to  the  plaintiff.  Sheets 
refused  to  deliver  the  property  and  Lowman  brought 
replevin. 

Point  Involved:    Whether  the  member  of  a  trading 


AUTHORITY  OF  PARTNER  863 

partnership  in  his  power  to  sell  has  the  apparent 
authority  to  sell  out  the  entire  property  of  the  firm  or 
the  property  in  which  its  capital  is  invested  as  permanent 
equipment. 

Coffey,  J.:  "It  is  contended  by  the  appellant  that 
Templeton  and  appellee  were  partners,  and  that,  as  such, 
either  partner  had  the  right  to  sell  the  property  owned  by 
the  firm  and  confer  a  good  title,  and  that  by  his  purchase 
from  Templeton  he  acquired  the  title  to  the  whole  of  the 
property  in  controversy  and  has  a  right  to  its  possession. 
We  do  not  deem  it  necessary  to  decide  whether  the  con- 
tract between  the  parties  was  one  of  partnership  or  not, 
as  the  appellant  had  no  power  to  sell  the  entire  property, 
whether  it  was  held  as  partnership  property  or  other- 
wise. The  partnership,  if  one  existed,  was  not  one  in 
which  the  parties  contemplated  a  sale  of  the  property 
here  involved,  but  it  was  one  in  which  this  property  was 
to  be  kept  for  the  purpose  of  carrying  on  a  particular 
business.  In  such  case  neither  party  had  the  power  to 
sell  the  entire  property :  Bates,  Partn.  §  401 ;  Hewitt  v. 
Sturdevant,  4  B.  Mon.  (Ky.)  453;  Cayton  v.  Hardy,  27 
Mo.  536;  Mussey  v.  Holt,  24  N.  H.  248;  Hudson  v. 
McKenzie,  1  E.  D.  Smith  (N.  Y.)  358.  Mr.  Bates,  in  his 
valuable  work  on  partnerships,  in  treating  the  subject  in 
the  section  above  cited,  says:  'But  I  have  no  doubt  but 
that  the  power  of  sale  must  be  confined  to  those  things 
held  for  sale,  and  that  the  scope  of  the  business  does  not 
include  the  sale  of  the  property  held  for  the  purpose  of 
business  and  to  make  a  profit  out  of  it,  and  that  this  only 
is  the  true  rule.'     *     *     *" 

Question  583:  (1.)  What  were  the  facts  in  this  case  and  the 
Court's  decision?     Give  the  reason. 

(2.)  A  and  B  were  partners  in  training  and  racing  horses. 
A  sold  one  of  the  horses.  Is  B  bound  by  the  sale?  (William 
v.  Tam,  131  Cal.  64.) 

Sec.  428.    Authority  of  Partner  to  Warrant. 

Case  No.  584.    Edwards  v.  Dillon,  147  HI.  14. 

Point  Involved:    Whether  a  partner  in  a  general  trad- 


864  PARTNERSHIPS 

ing  partnership  having  authority  to  sell  has  authority  to 
make  ordinary  warranties. 

Mb.  Justice  Magbudeb:  "The  firm  of  Levi  Dillon  & 
Sons  were  dealing  in  Norman  stallions.  Each  partner 
has  the  power  to  sell  these  stallions,  and  there  was 
involved  in  such  power  of  sale  the  further  power  to  war- 
rant the  quality  of  the  horse  as  to  its  fitness  for  the  pur- 
pose for  which  it  was  sold.  Partners  are  considered  as 
sanctioning  the  contracts  which  they  singly  enter  into  in 
the  course  of  trade.  By  the  act  of  entering  into  the  part- 
nership, each  partner  is  made  the  general  agent  of  his 
co-partners  as  to  the  firm  business  (Deckard  v.  Case,  5 
Watts,  22).  Where  a  general  agent  is  employed  to  carry 
on  a  business  the  authority  to  sell,  which  is  conferred 
upon  him,  may  carry  along  with  it  the  power  to  warrant, 
if  it  is  usual,  as  it  was  here,  to  give  a  warranty  when 
making  a  sale  in  such  a  business.  (Brady  v.  Todd,  9 
C.  B.  N.  S.  591;  Biddle  on  Warranties  in  the  Sale  of 
Chattels,  Sees.  14  and  15. )  A  general  agent  employed  to 
carry  on  the  business  of  horse-dealing  for  his  employer 
has  an  implied  authority  to  warrant  soundness  when 
making  sale  of  a  horse  (2  Benj.  on  Sales,  marg.  pages 
618-620;  Sees.  830,  831)." 

Question  584:    State  what  the  Court  held  in  this  case. 

(Note:  As  to  the  power  of  an  agent  to  warrant,  see  also 
Case  211  and  note.) 

Sec.  429.    Implied  or  Apparent  Power  of  Partner  to 
Borrow  Money  for  Firm  Purposes. 

(Note:  A  partner  has  apparent  authority  to  borrow  money 
in  behalf  of  the  firm,  if  it  is  a  trading  firm.  Lindley  says  (Lind- 
ley  on  Partnership,  8th  Ed.,  p.  167)  :  "The  sudden  exigencies  of 
commerce  render  it  absolutely  necessary  that  such  power  should 
exist  in  the  members  of  a  trading  partnership  and  according  to 
a  comparatively  early  case  this  power  was  clearly  recognized. 
(Lane  v.  Williams,  2  Vernon,  292)     *     *     *.    At  the  same  time, 


AUTHORITY  OF  PARTNER  865 

the  implied  power  of  borrowing  money,  like  every  other  implied 
power  of  a  partner,  only  exists  where  the  business  is  of  such 
a  kind  that  it  cannot  be  carried  on  in  the  usual  way  without 
such  a  power.  If  money  is  borrowed  by  one  partner  for  the 
declared  purpose  of  increasing  the  partnership  capital  (Fisher 
v.  Taylor,  2  Hare,  218),  or  of  raising  the  whole  or  a  part  of  the 
capital  agreed  to  be  subscribed  in  order  to  start  the  firm  (Green- 
slade  v.  Dower,  7  B.  &  C.  635),  or  if  the  business  is  such  as  is 
customarily  carried  on  on  ready  money  principles,  e.  g.,  mining 
on  the  cost  book  principle  (Hawtayne  v.  Bourne,  7  M.  E.  W. 
595),  or  without  borrowing,  as  in  the  case  of  solicitors  (Plum- 
mer  v.  Gregory,  18  Eq.  624),  the  firm  will  not  be  bound  unless 
some  actual  authority  or  ratification  can  be  proved.") 

Sec.  430.    Authority  to  Bind  Firm  on  Negotiable  Paper. 

Case  No.  585.    Jefferson  Bank  v.  C.  W.  L.  Co. 
(Set  out  as  Case  No.  475,  supra.) 

Question  585:  What  power  has  a  partner  to  bind  firm  on 
negotiable  paper? 

Case  No.  586.  Dowling  v.  Exchange  Bank,  145  U.  S. 
512. 

(Set  out  as  Case  No.  481,  supra.) 

Question  586:    (See  questions  following  case  as  set  out.) 

Sec.  431.    Authority  of  Partner  to  Settle,  Release,  Re- 
ceive Payment,  etc. 

(Note:  A  partner  has  authority  to  receive  payment  of  the 
firm  debts :  Heart  v.  Walsh,  75  111.  200 ;  unless  there  has  been  an 
agreement  to  the  contrary  of  which  the  debtor  has  notice :  Clark 
v.  Lauman,  63  111.  Ap.  132.  So  he  has  authority  to  settle  and 
release:  Salmon  v.  Davis,  4  Binney  (Penn.)  375,  5  Amer. 
Dec.  410.) 

Sec.  432.    Authority  to  Mortgage  and  Pledge. 

Case  No.  587.     Rock  v.  Collins,  99  Wis.  630. 

Winslow,  J.:  "*  *  *  2.  It  is  objected  that  the 
chattel  mortgage  upon  the  logging  outfit  was  invalid, 


866  PARTNERSHIPS 

because  made  by  one  partner  alone,  without  the  knowl- 
edge of  his  co-partner.  The  general  power  of  one  part- 
ner to  pay  firm  debts  out  of  firm  property  in  the  ordinary 
course  of  business  is  well  established ;  and,  if  he  may  pay 
a  debt,  no  good  reason  is  perceived  why  he  may  not  secure 
its  payment  by  pledging  or  mortgaging  firm  property.  It 
has  been  held  by  this  Court  that  one  partner  may,  in  the 
absence  of  his  co-partner,  mortgage  the  firm  property  to 
secure  a  bona  fide  partnership  debt  (Hage  v.  Campbell, 
78  Wis.  573) ;  also,  that  one  partner  may  make  a  valid 
voluntary  assignment  of  the  personal  property  of  the 
firm  for  the  benefit  of  creditors  where  the  other  partner 
has  absconded  (Voshmik  v.  Urquhart,  91  Wis.  513). 
There  has  been  some  diversity  of  opinion  upon  the  ques- 
tion whether  one  partner  may,  without  the  consent  of  his 
co-partner  who  is  accessible  for  consultation,  mortgage 
the  entire  firm  property  to  secure  a  firm  debt,  when  the 
effect  of  the  mortgage  would  be  to  practically  terminate 
the  business  of  the  firm,  although  the  weight  of  opinion 
seems  to  favor  the  validity  of  such  a  mortgage.  Jones, 
Chattel  Mortgages,  Sec.  46.  But  it  is  certain  that  the 
subsequent  acquiescence  or  consent  of  the  other  partner 
would  remove  all  question  as  to  the  validity  of  the  mort- 
gage. Jones,  Chattel  Mortgages,  supra.  Such  acquies- 
cence was  proven  in  the  present  case." 

Question  58?:  Does  a  partner  have  power  to  mortgage  the 
firm  property  to  secure  a  firm  debt  ?  Does  he  have  authority  to 
mortgage  the  entire  property  of  the  firm  ?  Is  there  a  difference 
of  opinion  on  this  question  ? 

Sec.  433.    Authority  to  Use  Partnership  Assets  to  Pay 
or  Secure  Personal  Debts. 

Case  No.  588.    Blinns  v.  Waddell,  32  Gratt.  588. 

Staples,  J.:  "*  *  *  One  partner  cannot  pledge  or 
sell  the  partnership  property,  in  payment  of  his  individ- 
ual debts,  without  the  consent  of  his  co-partner;  and  the 


AUTHORITY  OF  PARTNER  66? 

title  is  not  divested  by  such  pledge  or  sale  in  favor  of  a 
separate  creditor,  even  though  the  latter  may  not  know  it 
was  partnership  property.     *     *     *" 

Question  588:  A,  of  the  firm  of  A  and  B,  owes  a  personal  debt 
to  C  of  $100.  He  transfers  to  C  certain  partnership  property  in 
payment  of  this  debt.  Can  B  recover  this  property  ?  Suppose  C 
did  not  know  it  was  partnership  property  when  he  received  it? 

Sec.  434.    Authority  of  Partner  to  Make  Admissions. 

(Note:  See  the  cases  on  agency.  A  partner  may  make  ad- 
missions binding  upon  the  other  partners,  when  made  concern- 
ing the  partnership  business.) 

Sec.  435.    Authority  to  Receive  Notice. 

(Note :  See  the  cases  on  agency.  A  notice  to  the  partner  will 
bind  the  other  partners  when  received  in  reference  to  partner- 
ship business  and  according  to  the  law  of  agency.) 


CHAPTER    EIGHTY 

LIABILITY  OF  PARTNER  FOR  TORTS  OF  HIS  CO- 
PARTNER 

§  436.  General  rule.  §  437.  Examples  of  liability  for  the 

tort  of  a  partner. 

Sec.  436.    General  Rule. 

(Note:  The  subject  is  governed  by  the  general  rules  of 
agency.    See  cases  on  that  subject.    Also  the  following  cases). 

Sec.  437.    Examples  of  Liability  for  Tort  of  Partner. 

Case  No.  589.    Wolf  v.  Mills,  56  111.  360. 

Facts:    See  the  opinion. 

Point  Involved:  Whether  one  partner  is  liable  to 
third  persons  for  the  deceit  of  the  other  partner  in  the 
sale  of  goods  for  the  firm. 

Mr.  Justice  Thornton:  "The  appellee  brought  an 
action  on  the  case,  alleging  that  appellants  sold  him  a 
lot  of  sheep  pelts,  having  on  them  a  large  quantity  of 
wool;  and,  with  intent  to  defraud  him,  delivered  other 
and  inferior  pelts  in  quality,  and  deficient  in  the  quantity 
of  wool.     Appellee  recovered  a  verdict. 

"Wolf  and  Haber  jointly  owned  the  pelts  at  the  time 
of  the  sale.  The  proof  is  satisfactory  that  the  pelts  sold 
averaged  about  five  pounds  of  wool  per  pelt;  and  the 
pelts  delivered,  only  three  pounds. 

868 


CO-PARTNER'S  TORTS  869 

"As  to  the  alleged  fraud  the  evidence  is  conflicting. 
One  witness  testifies  positively,  that  he  saw  young  Haber, 
a  son  of  appellant,  change  the  pelts,  and  that  he  placed 
light  in  place  of  the  heavy  pelts,  soon  after  the  sale.  This 
was  contradicted  by  the  son;  but  the  weight  of  evidence 
has  been  determined  by  a  jury,  and  we  shall  not  disturb 
the  finding,  unless  some  principle  of  law  has  been 
violated. 

1 '  Appellants  urge  that,  as  there  is  no  evidence  to  prove 
the  change,  if  made,  was  by  the  direction  of  Wolf,  or  by 
any  person  in  his  employment  or  under  his  control,  there- 
fore he  is  not  liable.  The  evidence  does  show  that  Wolf 
&  Haber  were  partners  in  the  buying  and  selling  of  the 
sheep  pelts,  and  that  young  Haber  was  handling  them 
and  throwing  them  from  one  pile  to  the  other.  The  jury 
were  justified  in  the  inference  that  this  was  in  the  scope 
of  the  partnership  business,  as  it  was  connected  with  the 
joint  property.  It  is  improbable  that  the  son  would 
be  thus  engaged,  unless  directed.  The  father  must  have 
given  him  some  instructions  in  regard  to  the  exchange. 

1 '  There  was  then,  no  error  in  the  following  instruction 
given  for  appellee:  'If  the  jury  believe,  from  the  evi- 
dence, that  the  defendants  sold  the  plaintiff  a  certain  lot 
of  sheep  pelts  at  an  agreed  price  and  that  plaintiff  has 
paid  such  price,  and  that  the  defendants  afterward,  either 
in  person,  by  their  agents,  servants,  or  employees  deliv- 
ered to  plaintiff  a  lot  of  sheep  pelts  in  any  respect  differ- 
ent from  and  inferior  to  those  actualy  sold,  intending 
thereby  to  have  the  plaintiff  believe  they  were  the  same 
he  had  purchased,  and  intending  to  deceive  and  defraud 
the  plaintiff,  then  the  jury  are  instructed  to  find  defend- 
ants guilty,  and  to  assess  as  damages  whatever  loss  the 
evidence  may  show  the  plaintiff  sustained  through  such 
fraud  and  deceit.' 

"A  tortious  act  of  one  partner  will  often  create  a 
liability  against  the  firm.  So  a  fraud,  committed  by  one 
partner,  in  the  course  of  the  partnership  business,  binds 
the  firm,  even  though  the  other  partners  have  no  knowl- 
edge of,  or  participation  in,  the  fraud. 


870  PARTNERSHIPS 

"The  jury  might  reasonably  infer  all  that  was  neces- 
sary to  fix  the  liability  of  the  firm. 
"The  judgment  must  be  affirmed." 

Question  589:  State  the  facts,  the  question  presented  and  the 
Court's  decision  in  this  case. 

Case  No.  590.    Hess  v.  Lowrey,  122  Ind.  225. 

Facts:  Lowrey  sues  Luther  W.  Hess  and  Frank  C. 
Hess,  as  co-partners,  for  damages  caused  by  malpractice. 
The  alleged  malpractice  was  committed  by  one  of  the 
partners  (who  is  now  deceased)  and  it  is  sought  to  hold 
the  other  liable. 

Point  Involved: 

Mitchell,  C.  J. :  "*  *  *  That  each  partner  is  the 
agent  of  the  firm  while  engaged  in  the  prosecution  of  the 
partnership  business,  and  that  the  firm  is  liable  for  the 
torts  of  each,  if  committed  within  the  scope  of  his  agency, 
appears  to  be  well  settled.  Champlin  v.  Laytin,  18  Wend. 
407,  31  Am.  Dec.  382;  Tucker  v.  Cole,  54  Wis.  539,  11 
N.  W.  Rep.  703;  Fletcher  v.  Ingram,  46  Wis.  191;  Taylor 
v.  Jones,  42  N.  H.  25 ;  Schwabacker  v.  Riddle,  84  111.  517 ; 
Story  Partn.  §§  107-166;  1  Bates,  Partn.  §  461.  'It  fol- 
lows from  the  principles  of  agency,  coupled  with  the  doc- 
trine that  each  partner  is  the  agent  of  the  firm,  for  the 
purpose  of  carrying  on  its  business  in  the  usual  way,  that 
an  ordinary  partnership  is  liable  in  damages  for  the 
negligence  of  any  one  of  its  members  in  conducting  the 
business  of  the  partnership. '  1  Lindl.  Partn.  299.  Thus, 
in  Hyrne  v.  Erwin,  23  S.  C.  226,  55  Am.  Rep.  15,  which 
was  an  action  against  two  physicians  for  an  injury 
resulting  from  the  negligent  and  unskillful  setting  of  a 
broken  arm,  it  was  held  that  the  act  of  one  within  the 
scope  of  the  partnership  business  was  the  act  of  each  and 
all,  as  fully  as  if  each  was  present,  participating  in  all 
that  was  done,  and  that  each  partner  guaranties  that  the 
one  in  charge  shall  display  reasonable  care,  diligence,  and 
skill,  and  that  the  failure  of  one  is  the  failure  of  all." 


CO-PARTNER'S  TORTS  871 

Question  590:  (1.)  "What  was  the  tort  for  which  defendant 
was  sought  to  be  held  in  this  case?  Did  the  Court  hold  him 
liable  ? 

(2.)  Defendants  were  partners  in  owning  and  operating  a 
coal  mine.  One  of  the  defendants  was  manager  of  the  mine  and 
it  was  under  his  personal  superintendence.  He  allowed  it  to 
get  into  an  unsafe  condition  whereby  an  employee  was  injured. 
Can  the  other  defendant  be  held?  (Mellors  v.  Shaw,  1  B.  &  S. 
437.) 

Case  No.  591.    Lathrop  v.  Adams,  133  Mass.  471. 

Facts:  Suit  against  defendants  as  co-partners  of  a 
newspaper  for  publishing  a  libelous  article  concerning 
plaintiff. 

Point  Involved:  Whether  one  of  the  partners  was 
chargeable  with  this  libel  published  without  his  knowl- 
edge by  the  other  partner. 

Field,  J.:  "•  *  *  But  it  has  been  established  on 
much  consideration,  as  one  of  the  general  principles  of 
the  law  of  agency,  that  the  principal  is  liable  civilly  in 
damages  for  the  torts  of  his  agent  done  for  his  benefit  in 
the  prosecution  of  his  business,  and  within  the  scope  of 
the  agent's  employment,  and  this  rule  has  been  extended 
to  wilful  trespasses,  fraudulent  misrepresentations,  ma- 
licious prosecutions  and  libels.     *     *     * 

"The  logical  difficulty  of  imputing  the  actual  malice 
or  fraud  of  an  agent  to  his  principal  is  perhaps  less  when 
the  principal  is  a  person  than  when  it  is  a  corporation; 
still  the  foundation  of  the  imputation  is  not  that  it  is  in- 
ferred that  the  principal  actually  participated  in  the 
malice  or  fraud,  but,  the  act  having  been  done  for  his 
benefit  by  his  agent  acting  within  the  scope  of  his  em- 
ployment in  his  business,  it  is  just  he  should  be  held 
responsible  for  it  in  damages. 

"As  partners  are  the  general  agents  of  each  other 
and  of  the  firm,  within  the  scope  of  the  business  of  the 
partnership,  we  think  a  test  of  the  question  we  are  con- 
sidering is  the  liability  of  the  proprietor  of  a  newspaper 


872  PARTNERSHIPS 

in  damages  for  a  libel  maliciously  published  without  his 
knowledge  by  his  agent,  whom  he  has  trusted  with  the 
management  of  his  newspaper,  and  this  we  regard  as 
well  settled.  Shepheard  v.  Whitaker,  L.  E.  10  C.  P.  502 ; 
Dunn  v.  Hall,  1  Ind.  344;  Andres  v.  Wells,  7  Johns., 260; 
Perret  v.  New  Orleans  Times  Newspaper,  25  La.  An. 
170;  Storey  v.  Wallace,  60  111.  51.     *     *     *" 

Question  591:  What  was  the  tort  in  this  case  committed  by 
the  one  partner  for  which  the  other  was  held  liable  ? 

(2.)  What  was  the  nature  and  scope  of  the  firm  business? 
Do  you  think  the  Court  would  have  been  less  likely  to  have  held 
the  partner  liable  for  the  tort  of  libel  had  the  business  been  of 
a  mercantile  nature  ?     Why  ? 

Case  No.  592.     Eosenkrans  v.  Barker,  115  111.  331. 

Facts:  Suit  brought  by  Barker  against  Eosenkrans 
and  Weber  to  recover  damages  for  an  alleged  malicious 
prosecution  and  false  imprisonment.  In  1882,  Barker 
resided  in  Iowa  and  was  engaged  in  the  jewelry  business. 
In  the  latter  part  of  1882  he  bought  a  bill  of  goods  of 
Eosenkrans  and  Weber.  When  the  bill  was  due  $100  was 
paid,  but  the  rest  ($250)  has  never  been  paid.  Eosen- 
krans was  then  a  resident  of  Milwaukee,  Wisconsin,  but 
he  was  in  partnership  with  Weber  in  Chicago.  Weber 
induced  Barker  to  come  to  Chicago  and  caused  his  arrest 
and  detention  for  10  or  12  hours.  Eosenkrans  did  not 
hear  of  this  until  long  after  until  the  case  was  on  appeal 
when  he  at  once  told  his  partner  he  was  wrong  and  that 
the  appeal  should  not  be  prosecuted,  and  his  advice  was 
followed  and  the  appeal  dropped. 

Point  Involved:  Whether  one  partner  is  liable  for  the 
wrongful  arrest  of  a  debtor  to  the  firm,  caused  by  the 
other. 

Craig,  J.:    "*     *     * 

"It  is,  however,  claimed  by  appellee  that  Eosenkrans 
is  liable  upon  either  one  of  two  grounds :  First,  because 
those  who  caused  the  arrest  were  servants  or  agents  of 
Eosenkrans,  acting  within  the  scope  of  their  agency; 


CO-PARTNER'S  TORTS  873 

second,  the  wrongful  proceeding  was  instituted  for 
Rosenkrans,  and  in  his  name,  and  when  he  became  aware 
of  what  had  been  done  he  ratified  it.  Weber,  who  caused 
the  arrest  of  Barker,  was  not  in  fact  a  partner  of  Rosen- 
krans, but  he  acted  for  his  wife,  who  was  the  partner, 
and,  so  far  as  the  acts  are  concerned,  they  may  be  re- 
garded as  the  acts  of  Rosenkrans'  partner.  In  many 
respects  one  partner  is  the  agent  of  the  other.  In  the 
purchase  and  sale  of  goods  within  the  scope  of  the  part- 
nership business  the  acts  of  one  may  be  regarded  as  the 
acts  of  both.  In  such  cases  the  one  that  transacts  the 
business  acts  for  himself  and  in  the  capacity  as  agent  of 
the  other,  and  in  that  capacity  he  binds  himself  and  also 
binds  his  partner.  By  entering  into  partnership  each 
party  reposes  confidence  in  the  other,  and  constitutes 
him  his  general  agent  as  to  all  partnership  concerns. 
Gow,  Partn.  52.  But  the  question  involved  here  is  not 
as  to  the  liability  of  one  partner  for  the  contracts  of  the 
other,  but  it  is  whether  one  partner  may  be  liable  in  dam- 
ages for  the  wrongs  of  the  other.  Mr.  Collyer,  in  his 
work  on  Partnership,  §457,  says:  'A  learned  writer 
observes  that  though  partners  are  in  general  bound  by 
the  contracts,  they  are  not  answerable  for  the  wrongs, 
of  each  other.  In  general,  acts  or  omissions  in  the  course 
of  the  partnership  trade,  or  business,  in  violation  of  law, 
will  only  implicate  those  who  are  guilty  of  them.'  And, 
in  1  Lindl.  Partn.  bk.  2,  c.  1,  §  4,  the  author  says :  'As  a 
rule,  however,  the  willful  tort  of  one  partner  is  not  im- 
putable to  the  firm.  For  example,  if  one  partner  mali- 
ciously prosecutes  a  person  for  stealing  partnership  prop- 
erty, the  firm  is  not  answerable  unless  all  the  members 
are  in  fact  privy  to  the  malicious  prosecution.' 

"In  Gilbert  v.  Emmons,  42  HI.  143,  where  a  question 
arose  as  to  the  liability  of  one  partner  for  the  act  of  the 
other  in  causing  the  arrest  of  a  person  charged  with 
larceny  of  money  belonging  to  the  firm,  it  was  held  that 
the  mere  knowledge  and  consent  of  one  partner  that  the 
other  should  have  the  person  accused  arrested  would  not 
render  the  partner  so  knowing  and  consenting  liable  to 


874  PARTNERSHIPS 

an  action  for  malicious  prosecution;  it  was  necessary 
that  the  consent  should  be  of  such  a  character  as  to 
amount  to  advice  and  co-operation.  In  Grund  v.  Van 
Vleck,  69  111.  478,  a  question  arose  as  to  the  liability  of 
one  partner  for  the  tort  of  the  other,  and  it  was  held 
that  one  partner  cannot  involve  another  in  a  trespass 
unless  in  the  ordinary  course  of  their  business,  and  in  a 
case  where  the  trespass  is  in  the  nature  of  a  taking  which 
is  available  to  the  partnership ;  and  in  such  case,  to  ren- 
der the  partner  liable  who  did  not  join  in  the  commission 
of  the  trespass,  he  must  afterwards  have  concurred  and 
received  the  benefit  of  it.  Here  no  part  of  the  debt  was 
collected  by  the  commencement  or  prosecution  of  the 
proceedings  against  Barker,  and  it  is  not  claimed  that 
a  liability  exists  on  account  of  receiving  any  benefit  from 
the  arrest;  and  if  Rosenkrans  is  to  be  held  liable,  it  is 
upon  the  ground  that  he  was  a  member  of  the  firm  which 
instituted  the  suit  and  caused  the  arrest.  This  under 
the  authorities  cited,  cannot  be  done  [and  there  was  no 
ratification]." 

Question  592:  What  was  the  tort  in  this  case?  What  was 
the  nature  of  the  business  ?    Was  the  other  partner  held  liable  ? 

(Note :  This  case  while  probably  sound  on  the  facts,  is  wrong 
in  its  statement  of  the  law.  Whether  a  partner  is  liable  on  the 
torts  of  his  co-partner  does  not  depend  on  whether  the  tort  is 
wilful  or  not,  but  whether  or  not  it  is  within  the  scope  of  the 
partnership.) 


CHAPTER    EIGHTY-ONE 
THE  DURATION  OF  THE  LIABILITY 

§  438.  Liability  of  incoming  partner  for  debts  created  after  his 

for  past  indebtedness.  retirement. 

§  439.  Liability  of  outgoing  partner      §  440.  Liability  of   secret   partners. 

Sec.  438.    Liability  of  Incoming  Partner  for  Past  In- 
debtedness. 

Case  No.  593.     Karraker  v.  Eddleman,  101  111.  Ap.  23. 

Mr.  Justice  Creighton:    "*     *     * 

"A  firm  or  copartnership  as  constituted  after  an  in- 
coming partner  has  become  a  member  thereof  cannot  in 
any  case  be  held  for  the  payment  of  a  previously  con- 
tracted debt  for  which  such  incoming  member  has  not 
in  some  way  become  bound,  and  it  is  the  clearly  and 
universally  established  doctrine,  that  a  new  partner,  com- 
ing into  an  existing  firm,  will  not  be  liable  in  respect  to 
debts  contracted  by  the  firm  previous  to  his  entering  it, 
unless  he  assumes  them,  and  the  same  rule  applies  where 
one  becomes  a  partner  with  another  in  business  already 
established.  *  *  *  The  presumption  always  is  that 
such  incoming  partner  does  not  assume  the  payment  of 
previously  contracted  debts  'but  such  presumption  may 
be  rebutted  by  satisfactory  proof  of  the  contrary  inten- 
tion and  agreement'  *  *  *  j£\  the  Illinois  authori- 
ties proceed  upon  the  theory  that  to  hold  such  partner 
for  such  debt  there  must  have  been  on  his  part  a  promise, 
agreement  or  intention  to  assume  the  debt,  but  we  regard 

875 


876  PARTNERSHIPS 

it  as  well  established  that  such  promise,  agreement  or 
intention  may  be  proved  by  circumstantial  evidence,  i.  e., 
may  be  inferred  by  proof  of  such  facts  and  circumstances 
as  clearly  warrant  such  inference.     *     *     *" 

Question  593:  (1.)  Is  an  incoming  partner  liable  for  past  in- 
debtedness by  his  mere  act  of  coming  into  the  firm  ? 

(2.)  May  creditors  hold  him  as  a  member  of  the  firm  where 
he  assumes  such  debts  in  his  agreement  with  the  other  partners  ? 

(3.)  As  such  incoming  partner  was  not  in  the  firm  when  the 
debt  was  created,  why  do  you  think  that  this  assumption  of 
indebtedness  should  give  the  past  creditors  any  right  against 
him? 

(4.)     How  may  this  assumption  of  indebtedness  be  inferred? 

Sec.    439.    Liability   of    Outgoing   Partner   for   Debts 
Created  After  His  Withdrawal. 

Case  No.  594.    Austin  v.  Holland,  69  N.  Y.  571. 

Facts:  Suit  on  a  promissory  note  dated  August  1, 
1869,  signed  in  the  firm  name  of  Dillon,  Beebe  &  Co. 
Holland  is  sought  to  be  held  as  a  member  of  such  firm. 
He  denies  that  he  was  at  that  time  a  member  of  the  firm. 
Loveland  received  the  note  for  services  rendered  by  him 
after  Holland  withdrew.  A  notice  of  dissolution  was 
published  in  the  Toledo  papers  where  the  firm  carried 
on  business,  and  a  copy  was  mailed  to  Holland  at  Detroit. 
He  testified  he  never  received  it. 

Point  Involved:  Of  the  notice  necessary  to  be  given 
by  a  retiring  partner  to  safeguard  against  future  in- 
debtedness incurred  by  the  other  partner  or  partners; 
of  the  distinction  to  be  taken  as  to  those  who  have  dealt 
with  the  firm  and  others ;  whether  mailing  a  notice  which 
is  never  received  by  a  customer  is  notice  to  him ;  whether 
one  who  has  been  employed  by  the  firm  is  entitled  to  the 
notice  required  for  customers. 

Andrews,  J. :    "  *     *     * 

"The  publication  of  notice  of  the  dissolution  of  a 
partnership  in  a  newspaper  at  the  place  where  the  busi- 


LIABILITY  OF  OUTGOING  PARTNER  877 

ness  was  carried  on  is  notice  to  all  persons  who  had  not 
had  prior  dealings  with  the  firm;  and,  if  thereafter  one 
of  the  partners  enters  into  a  contract  in  the  firm  name 
with  a  new  customer  or  dealer,  the  other  partners  will 
not  be  bound.  The  rule  is  different  in  respect  to  persons 
who  have  dealt  with  the  firm  before  the  dissolution.  The 
rule  in  such  cases  in  this  state  requires  that,  to  relieve 
a  retiring  partner  from  subsequent  transactions  in  the 
partnership  name,  notice  of  the  dissolution  must  be 
brought  home  to  the  person  giving  credit  to  the  partner- 
ship. If,  in  any  way,  by  actual  notice  served,  or  by  see- 
ing the  publication  of  the  dissolution,  or  by  information 
derived  from  third  persons,  the  party,  at  the  time  of  the 
dealing,  is  made  aware  of  the  fact  that  the  partnership 
has  been  dissolved,  the  contract  will  not  bind  the  firm. 
It  is  sufficient  to  exempt  the  firm  from  liability  that  the 
person  so  contracting  with  a  partner  in  the  firm  name 
knew  or  had  reason  to  believe  that  the  partnership  had 
been  dissolved,  but  this  must  appear  and  be  found  by 
the  jury,  or  else  the  contract  will  be  treated  as  the  con- 
tract of  the  partnership:  Ketcham  v.  Clark,  6  Johns. 
(N.  Y.)  144;  5  Am.  Dec.  197;  Graves  v.  Merry,  6  Cow. 
(N.  Y.)  701;  16  Am.  Dec.  471;  Vernon  v.  Manhattan  Co., 
17  Wend.  (N.  Y.)  524;  22  Id.  183;  Nat.  Bk.  v.  Norton, 
1  Hill  (N.  Y.),  572;  Coddington  v.  Hunt,  6  Id.  595;  Clapp 
v.  Eogers,  12  N.  Y.  287;  City  Bank  v.  McChesney,  20  Id. 
242 ;  Bank  of  Commonwealth  v.  Mudgett,  44  Id.  514 ;  Van 
Eps  v.  Dillage,  6  Barb.  (N.  Y.)  244;  Mechanics'  Bank  v. 
Livingston,  33  Id.  458.  In  Vernon  v.  The  Manhattan  Co., 
the  chancellor  says :  'But  to  exempt  the  copartners  from 
liability  (on  a  contract  with  a  previous  dealer  with  the 
firm),  the  jury  must  be  satisfied  that  the  person  with 
whom  the  new  debt  was  contracted  either  had  actual 
notice  that  the  copartnership  was  dissolved,  or  that  facts 
had  actually  come  to  his  knowledge  sufficient  to  create 
a  belief  that  such  was  the  fact. '  The  same  rule  is  recog- 
nized in  the  other  cases  cited,  and  by  elementary  writers : 
3  Kent's  Com.  607;  Story  on  Part.  sec.  161;  Coll.  on  Part, 
sec.  533;  Lindley  on  Part.  337.    Lindley  says:    'Those 


878  PARTNERSklPS 

who  have  dealt  with  the  firm  before  a  change  took  place, 
are  entitled  to  assume,  until  they  have  notice  to  the  con- 
trary, that  no  change  has  occurred.  *  *  *  If  notice, 
in  point  of  fact,  can  be  established,  it  matters  not  by 
what  means  for  it  has  never  been  held  that  any  particular 
formality  must  be  observed. '  In  this  case,  the  jury  have 
found  that  the  plaintiff  did  not  receive  the  notice  sent 
by  mail,  and  had  no  information  of  the  dissolution  of 
the  firm  of  Dillon,  Beebe  &  Co.  prior  to  the  transaction 
in  question.  The  mailing  of  notice  properly  directed  to 
the  party  to  be  charged  raises  a  presumption  of  notice 
in  fact,  for  it  is  presumed  that  letters  sent  by  post  to  a 
party,  at  his  residence,  are  received  by  him  in  due  course. 
Best  on  Presumptions,  Sec.  403.  But  this  is  a  presump- 
tion of  fact,  and  not  of  law,  and  may  be  repelled  by  proof ; 
and,  if  the  receipt  of  the  letter  in  this  case  was  disproved, 
then  the  defendant  failed  to  show  the  actual  notice  re- 
quired in  order  to  exempt  him  from  responsibility,  and 
the  question  whether  the  letter  was  received  was,  we 
think  upon  the  evidence,  for  the  jury.  The  learned  coun- 
sel for  the  defendant  has  not  referred  as  to  any  case 
which  decides  that  the  mailing  of  a  notice  of  dissolution 
is  in  law  equivalent  to  actual  notice,  and  exempts  a  re- 
tiring partner  from  liability  to  prior  dealers  on  subse- 
quent engagements  in  the  firm  name.  Notice  by  mail 
of  the  dishonor  of  commercial  paper  is  in  most  cases 
sufficient  by  the  law  merchant  to  charge  an  indorser.  It 
is  a  part  of  the  contract  that  notice  may  be  given  in  this 
way,  and  it  is  not  material  in  fixing  the  liability  of  the 
indorser  whether  he  receives  it  or  not. 

"But  we  think  the  rule  requiring  actual  notice  of  the 
dissolution  of  a  partnership  to  prior  dealers  is  a  part  of 
the  law  of  this  state,  and  should  not  be  departed  from. 
It  may  subject  parties  in  some  cases  to  inconvenience, 
but  the  principle  upon  which  the  rule  proceeds  is  that, 
when  one  of  two  parties  is  to  sustain  injury  from  the 
giving  of  credit,  the  one  who  originally  induced  it  should 
bear  the  loss,  rather  than  the  one  who,  without  notice  of 
the  change,  relied  upon  the  continued  existence  of  the 


LIABILITY  OF  SECRET  PARTNER  879 

partnership :  Story  on  Part.  Sec.  160 ;  Wat.  on  Part.  384. 
The  judgment  of  the  general  term  should  be  affirmed." 

Question  594:  A,  of  the  firm  of  A,  B  and  C,  retired  therefrom. 
D  is  a  customer.  E  has  never  dealt  with  the  firm.  What  notice 
must  A  give  D  in  order  to  avoid  the  possibility  of  being  held  on 
future  debts  ?  What  notice  must  he  give  E  ?  Suppose  he  mails 
a  letter  to  E  which  E  never  gets ;  is  this  notice  ? 

(Note :  It  has  been  held  that  in  cases  of  dissolution  of  the  firm 
by  bankruptcy  of  a  member,  death  of  a  member,  war,  notice  by 
the  other  parties  is  unnecessary.) 

Sec.  440.    Liability  of  Secret  Partners. 

(The  rule  just  noticed  in  the  previous  section  does 
not  apply  in  case  of  secret  partners,  because  parties 
dealing  with  the  firm  after  the  withdrawal  of  the  secret 
partner  do  not  extend  credit  to  the  secret  partner.) 


CHAPTER    EIGHTY-TWO 

REMEDIES    OF    PARTNERSHIP    CREDITORS    IN 
COURTS  OF  LAW 

§  441.  Partners  jointly  liable.  §  445.  Right   of   individual   creditor 

§  442.  Each  partner  liable  in  solido.  against  firm  assets. 

§  443.  Rights     of     firm     creditors      §  446.  Preference  of  creditors, 
against  firm  assets. 

§  444.  Right  of  firm  creditor  against 
individual  assets  of  part- 
ner. 

Sec.  441.    Partners  Jointly  Liable. 

Case  No.  595.  Mason  v.  Eldred  et  al.,  6  Wall  (U.  S.) 
231. 

Field,  J.:    "*     *     * 

"It  is  true  that  each  copartner  is  bound  for  the  entire 
amount  due  on  copartnership  contracts;  and  that  this 
obligation  is  so  far  several  that  if  he  is  sued  alone,  and 
does  not  plead  the  non-joinder  of  his  copartners,  a  re- 
covery may  be  had  against  him  for  the  whole  amount 
due  upon  the  contract,  and  a  joint  judgment  against  the 
copartners  may  be  enforced  against  the  property  of  each. 
But  this  is  a  different  thing  from  the  liability  which 
arises  from  a  joint  and  several  contract.  There  the  con- 
tract contains  distinct  engagements,  that  of  each  con- 
tractor individually,  and  that  of  all  jointly,  and  different 
remedies  may  be  pursued  upon  each.  The  contractors 
may  be  sued  separately  on  their  several  engagements  or 
together  on  their  joint  undertaking.    But  in  copartner- 

880 


REMEDIES. OF  CREDITORS  AT  LAW  881 

ships  there  is  no  such  several  liability  of  the  copartners. 
The  copartnerships  are  formed  for  joint  purposes.  The 
members  undertake  joint  enterprises,  they  assume  joint 
risks,  and  they  incur  in  all  cases  joint  liabilities.  In  all 
copartnership  transactions  this  common  risk  and  liability 
exist.  Therefore  it  is  that  in  suits  upon  these  trans- 
actions all  the  copartners  must  be  brought  in,  except 
when  there  is  some  ground  of  personal  release  from  lia- 
bility, as  infancy  or  a  discharge  in  bankruptcy;  and  if 
not  brought  in,  the  omission  may  be  pleaded  in  abate- 
ment. The  plea  in  abatement  avers  that  the  alleged 
promises,  upon  which  the  action  is  brought  were  made 
jointly  with  another  and  not  with  the  defendant  alone, 
a  plea  which  would  be  without  meaning,  if  the  copartner- 
ship contract  was  the  several  contract  of  each  copart- 
ner. ' ' 

Question  595:  (1.)  A  and  B  as  partners  give  a  note  to  C 
(it  not  being  stated  therein  that  they  are  jointly  and  severally 
liable),  the  note  represents  a  partnership  transaction.  C  sues 
A  on  the  note.    What  can  A  do  to  abate  the  action? 

(2.)  Assuming  that  C  sued  A  and  B  and  got  judgment  on 
the  note,  could  A's  property  be  taken  in  full  satisfaction  of  the 
judgment?  (See  following  sections.)  In  that  case  could  A  re- 
quire B  to  contribute?     (See  following  sections.) 

Sec.  442.    Each  Partner  Liable  in  Solido. 

(Note :  Though  the  partners  must  all  be  joined  in  a  suit  on 
a  partnership  contract  debt,  yet  each  partner  may  be  compelled 
ultimately  to  bear  the  entire  indebtedness.  The  debt  is  a  joint 
one,  yet  to  creditors,  each  partner  stands  responsible  for  the  debt 
in  solido.  Accordingly  the  creditor  can  satisfy  his  judgment  out 
of  the  assets  of  any  member,  leaving  the  partners  to  account 
among  themselves.    See  Sec.  444,  post.) 

Sec.  443.    Right  of  Firm  Creditors  Against  Firm  Assets 
(at  Law  as  Distinguished  from  in  Equity). 

(Note:  Firm  creditors  may  satisfy  judgments  against  the 
firm  by  a  levy  on  the  assets  of  the  firm.     As  to  the  relative  rights 


882  PARTNERSHIPS 

of  firm  creditors  and  individual  creditors  on  the  assets  of  the 
firm  where  both  classes  of  creditors  are  before  the  court  of 
equity  or  bankruptcy,  see  next  chapter.) 

Sec.  444.  Right  of  Firm  Creditors  Against  Individual 
Assets  of  Partner  (at  law  as  Distinguished  from  in 
Equity) . 

Case  No.  596.     Stout  v.  Baker,  32  Kan.  113. 

Facts:  Stout  brings  replevin  against  Baker,  a  sheriff, 
to  recover  a  buggy  that  Baker  has  seized  under  a  judg- 
ment against  Stout  and  Wingert,  copartners,  and  he 
alleges  that  such  buggy  does  not  belong  to  Stout  and 
Wingert,  but  to  him,  Stout,  personally. 

Point  Involved:  Whether  under  a  judgment  against 
partners,  sued  as  partners,  the  individual  property  of 
one  of  the  partners  may  be  taken  to  satisfy  such  judg- 
ment. 

Hurd,  J.:  "*  *  *  We  think  an  execution  on  it 
might  be  legally  levied  upon  the  partnership  property 
of  both,  or  the  individual  property  of  either.     *     *     • w 

Question  596:  State  the  facts,  question  presented  and  Court's 
decision  in  this  case. 

Sec.  445.    Right  of  Individual  Creditor  Against  Firm 
Assets  (at  Law  as  Distinguished  from  in  Equity). 

Case  No.  597.  Newhall  et  al.  v.  Buckingham,  14  111. 
405. 

Facts:  Newhall  and  Co.  were  creditors  of  Hoyt  and  to 
enforce  their  debt  sued  out  an  attachment  which  was 
levied  upon  the  stock  of  goods  of  the  firm  of  Hoyt  and 
Haskins.  The  sheriff  took  possession  of  the  goods.  Has- 
kins  shortly  afterward  made  an  assignment  of  the  firm's 
goods  to  Buckingham  and  Buckingham  brings  suit,  con- 
tending that  the  goods  of  the  firm  were  wrongfully  seized 
for  the  individual  debts  of  a  member  of  the  firm. 


REMEDIES  OF  CREDITORS  AT  LAW  883 

Point  Involved:  Whether  a  partner's  interest  in  the 
firm  is  subject  to  levy  on  execution;  whether  the  sheriff 
in  selling  such  interest  can  take  manual  possession  of 
firm  assets ;  whether  he  can  seize  some  or  must  seize  all 
of  the  firm  assets. 

Treat,  C.  J. :  "It  was  held  in  Bachurst  v.  Clinkard, 
1  Shower,  173,  that  on  an  execution  against  one  of  two 
partners,  the  sheriff  might  seize  the  partnership  prop- 
erty, and  sell  the  share  of  him  against  whom  the  writ 
issued.  In  Pope  v.  Haman,  Comb.  217,  Holt,  C.  J.,  said : 
'  Upon  a  judgment  against  one  copartner,  the  sheriff  may 
take  the  goods  of  both  in  execution;  and  the  other  co- 
partner hath  no  remedy  at  law,  otherwise  than  by  re- 
taking the  goods,  if  he  can ;  for  the  vendee  of  the  sheriff 
becomes  tenant  in  common  with  the  other  copartner.' 
In  Heydon  v.  Heydon,  1  Salk.  392,  on  an  execution 
against  one  partner,  which  had  been  levied  on  the  part- 
nership goods,  the  Court  remarked:  'The  sheriff  must 
seize  all,  because  the  moieties  are  undivided;  for  if  he 
seize  but  a  moiety,  and  sell  that,  the  other  will  have  a 
right  to  a  moiety  of  that  moiety;  but  he  must  seize  the 
whole,  and  sell  a  moiety  thereof  undivided,  and  the  ven- 
dee will  be  tenant  in  common  with  the  other  partner.' 
In  Parker  v.  Pistor,  3  B.  &  P.  288,  an  execution  against 
one  partner  was  levied  on  the  partnership  goods,  and 
the  partnership  creditors  moved  the  Court  to  give  the 
sheriff  time  to  return  the  writ,  until  an  account  could  be 
taken  of  the  claims  against  the  firm;  but  the  Court  re- 
fused the  application  on  the  ground,  'that  it  was  a  very 
plain  case  at  law,  and  that  all  the  difficulties  were  to  be 
encountered  in  equity ;  that  the  safest  line  of  conduct  for 
the  sheriff  to  pursue  was  to  put  some  person  in  posses- 
sion of  the  defendant 's  share  as  vendee,  leaving  him  and 
the  parties  interested  to  contest  the  matter  in  equity.' 
In  the  recent  case  of  Johnson  v.  Evans,  7  M.  &  G.  240, 
the  Court  uses  this  language:  'It  is  undoubtedly  true, 
that  in  order  to  make,  and  for  the  purpose  of  making, 
the  execution  effectual  against  the  share  of  the  debtor 


884  PARTNERSHIPS 

partner  in  the  joint  property,  the  sheriff  must  seize  tht 
whole,  the  shares  of  the  two  partners  being  undivided. 
Such  seizure  of  the  whole,  it  is  obvious,  arises  from  the 
necessity  of  the  case ;  just  as  if  a  man  purchases  an  un- 
divided moiety  of  a  chattel  that  is  indivisible,  he  cannot 
in  any  way  take  possession  of  that  moiety  without  taking 
possession  of  the  whole.' 

1 '  The  English  courts  uniformly  hold,  that,  on  an  execu- 
tion against  one  partner,  the  sheriff  may  seize  the  part- 
nership goods,  and  sell  the  share  of  the  partner  against 
whom  the  process  issued.  As  respects  the  property  taken, 
the  partnership  is  dissolved,  and  the  purchaser  becomes 
a  tenant  in  common  with  the  other  partner.  He,  how- 
ever, acquires  the  share  of  the  debtor  partner  subject  to 
the  right  of  the  remaining  partner,  and  through  him  of 
the  partnership  creditors,  to  have  the  property  applied, 
so  far  as  it  may  be  necessary,  to  the  payment  of  the 
joint  debts.  But  this  right  is  an  equitable  one,  and  can- 
not be  enforced  at  law.  The  weight  of  authority  in  the 
United  States  is  decidedly  the  same  way.     *     *     * 

"The  cases  of  Morrison  v.  Blodgett,  8  N.  H.  238,  29 
Am.  Dec.  653,  and  Deal  v.  Bogue,  20  Pa.  St.  228,  57  Am. 
Dec.  702,  deny  the  right  of  the  sheriff  to  seize  the  part- 
nership goods  on  an  execution  against  one  partner.  But 
these  cases  are  clearly  against  the  current  of  the  authori- 
ties. They  are  innovations  upon  the  well-established 
legal  rule;  and  are  the  result  of  attempts  by  courts  of 
law  to  administer  a  principle  of  equity.  They  virtually 
prevent  the  individual  creditors  of  a  partner  from  sub- 
jecting his  share  in  partnership  property  to  the  payment 
of  their  debts.  What  remedy  have  such  creditors  against 
the  share  of  their  debtor  in  partnership  goods,  unless 
the  goods  can  be  seized,  and  his  interest  in  them  sold  on 
execution?  In  order  to  sell  that  interest,  the  officer  must, 
for  the  time  being,  have  the  custody  of  the  property. 
A  levy  would  be  ineffectual,  if  the  property  is  to  remain 
in  the  possession  and  subject  to  the  control  of  another. 
From  the  necessity  of  the  case,  the  officer  must  be  allowed 
to  reduce  it  into  possession.     The  authority  to  sell  a 


REMEDIES  OF  CREDITORS  AT  LAW  885 

chattel  or  any  interest  therein  on  execution,  necessarily 
includes  the  power  to  take  possession  thereof  for  the 
purpose.  There  are,  indeed,  inconveniences  growing  out 
of  the  seizure  of  partnership  property  for  the  individual 
debts  of  a  partner.  They  are,  however,  unavoidable. 
They  are  incidents  of  this  kind  of  title  to  property.  They 
must  be  borne,  or  separate  creditors  may  be  without  any 
effectual  remedy  for  the  collection  of  their  debts.  Their 
debtor  may  have  no  individual  estate,  and  still  be  entitled 
to  a  large  surplus  in  the  joint  estate  after  the  affairs 
of  the  partnership  are  adjusted.  The  same  inconven- 
iences may  ariso  in  the  case  of  tenants  in  common  of  a 
chattel ;  and  yet  the  law  is  firmly  settled,  that  on  an  execu- 
tion against  one  of  them,  the  sheriff  may  take  exclusive 
possession  of  the  chattel  in  order  to  sell  a  moiety  thereof. 
Melville  v.  Brown,  15  Mass.  82 ;  Reed  v.  Howard,  2  Mete. 
36;  Waddell  v.  Cook,  2  Hill,  47;  Blevins  v.  Baker,  11  Ire- 
dell, 291.  It  is  said  in  Douglass  v.  Winslow,  supra,  'It  may 
be  inconvenient  to  other  partners  to  have  their  opera- 
tions thus  broken  in  upon,  and  partnerships  virtually 
dissolved ;  but  it  is  a  hazard  to  which  they  are  necessarily 
subjected,  when  they  unite  in  business  with  others  in- 
cumbered with  separate  debts.  Were  the  law  otherwise, 
a  wide  door  would  be  open  to  delay  and  defraud  cred- 
itors. A  man  with  funds  to  a  very  large  amount,  half 
of  which  is  due  to  others,  has  nothing  to  do  but  to  invest 
them  in  a  partnership,  and  he  may  then  set  his  creditors 
at  defiance,  or  oblige  them  to  wait  until  the  partnership 
concerns  are  liquidated  and  closed  by  the  slow  process  of 
a  court  of  chancery. '     *     *     * 

"In  equity,  a  partner  has  the  specific  right  to  have 
the  partnership  effects  faithfully  applied  to  the  payment 
of  the  partnership  debts.  The  real  interest  of  a  partner 
in  the  joint  property,  is  a  moiety  of  the  surplus  that 
may  remain  after  the  joint  debts  are  discharged.  And 
this  interest  is  all  that  a  purchaser  acquires  at  a  sale  on 
execution.  He  succeeds  only  to  the  rights  of  the  debtor 
partner.    He  takes  the  property  burdened  with  the  pay- 


886  PARTNERSHIPS 

ment  of  the  joint  debts.  The  sheriff  delivers  the  prop- 
erty to  the  purchaser  and  the  other  partner  as  tenants 
in  common,  subject  to  the  incumbrance  of  a  partnership 
account.  The  account  may  be  taken  at  the  instance  of 
the  purchaser  or  the  other  partner.  Although  there  is 
not  a  perfect  agreement  among  the  decided  cases,  the 
better  opinion  seems  to  be,  that  a  court  of  equity  may 
interfere  by  injunction  to  restrain  a  sale  by  the  sheriff, 
until  the  partnership  account  is  taken,  and  the  precise 
interest  of  the  debtor  partner  ascertained.  1  Story's  Eq. 
§  678 ;  Story  on  Partnership,  §  264 ;  Place  v.  Sweetzer, 
16  Ohio,  142;  Cammack  v.  Johnson,  2  N.  J.  Eq.  163. 

"This  case  is  at  law,  and  must  therefore  be  decided 
upon  legal  principles.  Under  our  statute,  whatever  is 
the  subject  matter  of  seizure  and  sale  on  execution,  may 
be  taken  in  the  proceeding  by  attachment,  and  held  sub- 
ject to  sale  on  the  judgment  that  may  be  recovered.  The 
sheriff  had  a  clear  right  to  seize  the  goods  in  question; 
and  he  has  equally  the  right  to  retain  them  until  the  suit 
is  determined.  If  it  results  in  a  judgment  for  attaching 
creditors,  he  may  sell  the  interest  of  Hoyt  in  the  goods, 
and  deliver  them  to  the  purchaser  and  the  assignee  as 
tenants  in  common,  subject  to  the  rights  of  the  assignee 
and  of  the  creditors  of  the  firm  to  have  them  applied,  so 
far  as  it  may  be  necessary,  to  the  satisfaction  of  the  joint 
debts.  But  these  rights  are  to  be  asserted  in  equity. 
A  bill  for  the  purpose  may  be  filed  by  the  purchaser,  the 
assignee,  or  any  of  the  joint  creditors. 

"The  circuit  court  erred  in  holding,  that  the  assignee 
was  entitled  to  withdraw  the  goods  from  the  custody  of 
the  sheriff.' ' 

Question  597:  According  to  this  case,  if  an  individual  creditor 
has  a  judgment  against  one  who  is  in  partnership  with  a  third 
person,  can  the  partnership  property  be  seized  under  execution  ? 

(2.)     Must  all  the  partnership  property  be  seized? 

(3.)  What  is  sold  under  such  seizure?  How  would  such 
interest  be  determined? 


REMEDIES  OF  CREDITORS  AT  LAW  887 

Sec.  446.    Preference  of  Creditors. 

(A  partnership  has  the  same  right  to  prefer  creditors 
as  an  individual  has.  In  equity  where  the  assets  are 
before  the  Court  for  distribution  of  course  there  is  to 
be  no  preference.  But  when  the  assets  are  not  before 
such  a  court,  the  partners  may  prefer  in  payment  such 
creditors  as  they  choose.  Under  our  present  bankruptcy 
act  such  preferences  would  indeed  be  acts  of  bankruptcy 
and  recoverable  from  the  preferred  creditors,  provided 
bankruptcy  proceedings  are  begun  within  four  months 
of  the  preference.) 


CHAPTER    EIGHTY-THREE 

RIGHTS  OF  CREDITORS  OF  PARTNERS  IN  COURTS 
OF  EQUITY  TO  FIRM  AND  INDIVIDUAL  ASSETS 

§  447.  The  rule  in  equity.  §  448.  The  partner  as  a  creditor. 

Sec.  447.    The  Rule  in  Equity  and  Bankruptcy  as  to  the 
Division  of  the  Firm  Assets. 

Case  No.  598.  National  Bankruptcy  Act  (1898)  Sec. 
5f. 

"The  net  proceeds  of  the  partnership  property  shall 
be  appropriated  to  the  payment  of  the  partnership  debts, 
and  the  net  proceeds  of  the  individual  estate  of  each 
partner  to  the  payment  of  his  individual  debts.  Should 
any  surplus  remain  of  the  property  of  any  partner  after 
paying  his  individual  debts,  such  surplus  shall  be  added 
to  the  partnership  assets  and  be  applied  to  the  payment 
of  the  partnership  debts.  Should  any  surplus  of  the 
partnership  property  remain  after  paying  the  partner- 
ship debts,  such  surplus  shall  be  added  to  the  assets  of 
the  individual  partners  in  the  proportion  of  their  re- 
spective interests  in  the  partnership." 

Question  598:  How  are  firm  and  individual  assets  marshalled 
in  bankruptcy  for  payment  of  firm  and  individual  debts? 

Case  No.  599.    Rodgers  v.  Meranda,  7  Ohio  St.  180. 

Baetley,  C.  J.:  "Two  questions  are  presented  for 
determination  in  this  case.    1.     The  first  is,  whether  in 

888 


REMEDIES  OF  CREDITORS  IN  EQUITY  889 

the  distribution  of  the  assets  of  insolvent  partners,  where 
there  are  both  individual  and  partnership  assets,  the  in- 
dividual creditors  of  a  partner  are  entitled  to  be  first 
paid  out  of  the  individual  effects  of  their  debtor,  before 
the  partnership  creditors  are  entitled  to  any  distribution 
therefrom.  It  is  well  settled  that,  in  the  distribution  of 
the  assets  of  insolvent  partners,  the  partnership  cred- 
itors are  entitled  to  a  priority  in  the  partnership  effects ; 
so  that  the  partnership  debts  must  be  settled  before  any 
division  of  the  partnership  funds  can  be  made  among 
the  individual  creditors  of  the  several  partners.  This  is 
incident  to  the  nature  of  partnership  property.  It  is  a 
right  of  a  partner  to  have  the  partnership  property  ap- 
plied to  the  purposes  of  the  firm;  and  the  separate  in- 
terest of  each  partner  in  the  partnership  property  is  his 
share  of  the  surplus  after  the  payment  of  the  partner- 
ship debts.  And  this  rule,  which  gives  the  partnership 
creditors  a  preference  in  the  partnership  effects,  would 
seem  to  produce,  in  equity,  a  corresponding  and  correla- 
tive rule,  giving  a  preference  to  the  individual  creditors 
of  a  partner  in  his  separate  property;  so  that  partner- 
ship creditors  can,  in  equity,  only  look  to  the  surplus  of 
the  separate  property  of  a  partner,  after  the  payment 
of  his  individual  debts;  and,  on  the  other  hand,  the  in- 
dividual creditors  of  a  partner  can,  in  like  manner,  only 
claim  distribution  from  the  debtor's  interest  in  the  sur- 
plus of  the  joint  fund,  after  the  satisfaction  of  the  part- 
nership creditors.  The  correctness  of  this  rule,  how- 
ever, has  been  much  controverted;  and  there  has  not 
been  always  a  perfect  concurrence  in  the  reasons  as- 
signed for  it  by  those  courts  which  have  adhered  to  it. 
By  some,  it  has  been  said  to  be  an  arbitrary  rule,  estab- 
lished from  considerations  of  convenience;  by  others, 
that  it  rests  on  the  basis  that  a  primary  liability  attaches 
to  the  fund  on  which  the  credit  was  given — that  in  con- 
tracts with  a  partnership,  credit  is  given  on  the  supposed 
responsibility  of  the  firm;  while  in  contracts  with  a 
partner  as  an  individual,  reliance  is  supposed  to  be 
placed  on  his  separate  responsibility;  3  Kent  Com.  65. 


890  PARTNERSHIPS 

And  again,  others  have  assigned  as  a  reason  for  the  rule 
that  the  joint  estate  is  supposed  to  be  benefited  to  the 
extent  of  every  credit  which  is  given  to  the  firm,  and 
that  the  separate  estate  is,  in  like  manner  presumed  to 
be  enlarged  by  the  debts  contracted  by  the  individual 
partner ;  and  there  is  consequently  a  clear  equity  in  con- 
fining the  creditors,  as  to  preferences,  to  each  estate  re- 
spectively, which  has  been  thus  benefited  by  their  trans- 
actions; McCulloh  v.  Dashiell,  1  Harr.  &  Gill.  (Md.)  96, 
18  Am.  Dec.  271.  But  these  reasons  are  not  entirely  sat- 
isfactory. So  important  a  rule  must  have  a  better  foun- 
dation to  stand  upon  than  mere  considerations  of 
convenience;  and  practically  it  is  undeniable  that  those 
who  give  credit  to  a  partnership  look  to  the  individual 
responsibility  of  the  partners,  as  well  as  that  of  the  firm ; 
and  also,  those  who  contract  with  a  partner  in  his  sep- 
arate capacity,  place  reliance  on  his  various  resources 
or  means,  whether  individual  or  joint.  And  inasmuch 
as  individual  debts  are  often  contracted  to  raise  means 
which  are  put  into  the  business  of  a  partnership,  and 
also  partnership  effects  often  withdrawn  from  the  firm 
and  appropriated  to  the  separate  use  of  the  partners,  it 
cannnot  be  practically  true  that  the  separate  estate  has 
been  benefited  to  the  extent  of  every  credit  given  to  each 
individual  partner,  nor  that  the  joint  estate  has  been 
retained  from  the  separate  estate  of  each  partner  the 
benefit  of  every  credit  given  to  the  firm.  Unsatisfactory 
reasons  may  weaken  confidence  in  a  rule  which  is  well 
founded. 

1  'What  then  is  the  true  foundation  of  the  rule  which 
gives  the  individual  creditor  a  preference  over  the  part- 
nership creditor,  in  the  distribution  of  the  separate  estate 
of  a  partner?  To  say  that  it  is  a  rule  of  general  equity, 
as  has  been  sometimes  said,  is  not  a  satisfactory  solution 
of  the  difficulty;  for  the  very  question  is,  whether  it  be 
a  rule  of  equity  or  not.  In  the  distribution  of  the  assets 
of  insolvents,  equality  is  equity;  and  to  say  that  the 
rule  which  gives  the  individual  creditor  a  preference 
over  the  partnership  creditor  in  the  separate  estate  of  a 


REMEDIES  OF  CREDITORS  IN  EQUITY  891 

partner  is  a  rule  of  equality,  does  not  still  rid  the  subject 
of  difficulty.  For  leaving  the  rule  to  stand,  which  gives 
the  preference  to  the  joint  creditors  in  the  partnership 
property,  and  perfect  equality  between  the  joint  and  in- 
dividual creditors,  is,  perhaps,  rarely  attainable.  That 
it  is,  however,  more  equal  and  just  as  a  general  rule, 
than  any  others  which  can  be  devised,  consistently  with 
the  preference  to  the  partnership  creditors  in  the  joint 
estate,  cannot  be  successfully  controverted.  It  originated 
as  a  consequence  of  the  rule  of  priority  of  partnership 
creditors  in  the  joint  estate,  and  for  the  purposes  of 
justice  became  necessary  as  a  correlative  rule.  With 
what  semblance  of  equity  could  one  class  of  creditors, 
in  preference  to  the  rest,  be  exclusively  entitled  to  the 
partnership  fund,  and,  concurrently  with  the  rest,  en- 
titled to  the  separate  estate  of  each  partner?  The  joint 
creditors  are  no  more  meritorious  than  the  separate 
creditors;  and  it  frequently  happens,  that  the  separate 
debts  are  contracted  to  raise  means  to  carry  on  the  part- 
nership business.  Independent  of  this  rule,  the  joint 
creditors  have,  as  a  general  thing,  a  great  advantage 
over  the  separate  creditors.  Besides  being  exclusively 
entitled  to  the  partnership  fund,  they  take  their  distribu- 
tive share  in  the  surplus  of  the  separate  estate  of  each 
of  the  several  partners,  after  the  payment  of  the  separate 
creditors  of  each.  It  is  a  rule  of  equity,  that  where  one 
creditor  is  in  a  situation  to  have  two  or  more  distinct 
securities  or  funds  to  rely  on,  the  Court  will  not  allow 
him,  neglecting  his  other  funds,  to  attach  himself  to  one 
of  the  funds,  to  the  prejudice  of  those  who  have  a  claim 
upon  that,  and  no  other  to  depend  upon.  And  besides 
the  advantage  which  the  joint  creditors  have,  arising 
from  the  fact  that  the  partnership  fund  is  usually  much 
the  largest,  as  men  in  trade,  in  a  great  majority  of  cases, 
embark  their  all,  or  the  chief  part  of  their  property,  in 
it ;  and  besides  their  distributive  rights  in  the  surplus  of 
the  separate  estate  of  the  other  partners,  the  joint  cred- 
itors have  a  degree  of  security  for  their  debts  and  facili- 
ties for  recovering  them,  which  the  separate  creditors 


892  PARTNERSHIPS 

have  not;  they  can  sell  both  the  joint  and  the  separate 
estate  on  an  execution,  while  the  separate  creditor  can 
sell  only  the  separate  property  and  the  interest  in  the 
joint  effects  that  may  remain  to  the  partners,  after  the 
accounts  of  the  debts  and  effects  of  the  firm  are  taken 
as  between  the  firm  and  its  creditors,  and  also  as. be- 
tween the  partners  themselves.  With  all  these  advan- 
tages in  favor  of  partnership  creditors,  it  would  be 
grossly  inequitable  to  allow  them  the  exclusive  benefit 
of  the  joint  fund,  and  then  a  concurrent  right  with  in- 
dividual creditors  to  an  equal  distribution  in  the  separate 
estate  of  each  partner.  What  equality  and  justice  is 
there  in  allowing  partnership  creditors,  who  have  been 
paid  eighty  per  cent,  on  their  debts  out  of  the  joint  fund, 
to  come  in  pari  passu  with  the  individual  creditors  of 
one  of  the  partners,  whose  separate  property  will  not 
pay  twenty  per  cent,  to  his  separate  creditors?  How 
could  that  be  said  to  be  an  equal  distribution  of  the  assets 
of  insolvents  among  their  creditors?  It  is  true  that  an 
occasional  case  may  arise  where  the  joint  effects  are 
proportionably  less  than  the  separate  assets  of  an  in- 
solvent partner.  But,  as  a  general  thing,  a  very  decided 
advantage  is  given  to  the  partnership  creditors,  notwith- 
standing this  preference  of  the  individual  creditors  in 
the  separate  property.  And  that  advantage,  arising  out 
of  the  nature  of  a  partnership  contract,  is  unavoidable. 
Some  general  rule  is  necessary;  and  that  must  rest  on 
the  basis  of  the  unalterable  preference  of  the  partnership 
creditors  in  the  joint  effects,  and  their  further  right  to 
some  claim  in  the  separate  property  of  each  of  the  sev- 
eral partners.  The  preference,  therefore,  of  the  indi- 
vidual creditors  of  a  partner  in  the  distribution  of  his 
separate  estate,  results  as  a  principle  of  equity  from  the 
preference  of  partnership  creditors  in  the  partnership 
funds,  and  their  advantages  in  having  different  funds  to 

resort  to,  while  the  individual  creditors  have  but  the  one. 

*     #     #  >» 

Question  599:    Where  the  assets  of  the  partnership  and  of  the 
partners  are  before  the  court  of  equity  for  distribution  among 


REMEDIES  OF  CREDITORS  IN  EQUITY  893 

creditors,  what  according  to  this  case,  are  the  rights  of  firm 
creditors  and  of  individual  creditors? 


(Note:  The  rule  of  this  case  is  the  one  adopted  in  the  ma- 
jority of  American  states.  In  some,  however,  the  rule  is  ap- 
plied that  after  the  partnership  assets  have  been  exhausted  by 
dividends  to  the  partnership  creditors,  the  creditors  may  prove 
up  and  participate  with  the  individual  creditors  in  the  individual 
assets.) 

Case  No.  600.    Pahlman  v.  Graves,  26  111.  405. 

Breese,  J.:     "*     *     * 

"The  general  rule  by  which  courts  of  equity  are  gov- 
erned, in  the  administration  of  the  assets  of  deceased 
and  insolvent  partners,  is,  if  there  be  partnership  prop- 
erty, and  also  separate  property  of  a  partner,  the  part- 
nership debts  are  to  be  paid  out  of  the  proceeds  of  the 
joint  estate,  and  the  individual  debts  are  to  be  paid  out 
of  the  proceeds  of  the  separate  estate.  The  joint  and 
individual  debts  are  to  be  kept  distinct,  and  the  assets 
derived  from  the  two  estates  are  to  be  marshalled  ac- 
cordingly. The  joint  creditors  have  no  claim  on  the  fund 
arising  from  the  separate  estate,  until  the  individual 
debts  are  satisfied,  and  on  the  other  hand  the  separate 
creditors  can  only  seek  payment  out  of  the  surplus  of 
the  partnership  effects,  after  the  satisfaction  of  the  joint 
liabilities.  Such  is  unquestionably  the  rule  in  equity 
where  there  is  a  joint  and  separate  estate  to  be  dis- 
tributed among  joint  and  individual  creditors.  1  Story 
Eq.  Jur.  Sec.  675;  3  Kent's  Com.  64;  Story  on  Part., 
Sec.  363;  Wilder  v.  Keeler,  3  Paige,  167;  McCulloh  v. 
Dashiell,  1  Harris  &  Gill,  96. 

"If,  however,  *  *  *  there  is  no  joint  fund  to 
which  the  joint  creditors  can  resort  and  no  solvent  part- 
ner from  whom  payment  can  be  enforced,  they  should  be 
allowed  to  participate  equally,  with  the  private  creditors 
in  the  estate  of  the  deceased  [or  insolvent]  partner.' ' 


894  PARTNERSHIPS 

Question  600:  If  there  is  no  joint  estate  and  no  solvent 
partner,  what  rights  have  the  creditors,  according  to  this  case, 
in  equity,  in  the  individual  assets  as  against  individual  creditors  ? 

Case  No.  601.     Case  v.  Beauregard,  99  U.  S.  119. 

Me.  Justice  Strong  :     * '  *     *     * 

"No  doubt  the  effects  of  a  partnership  belong  to  it 
as  long  as  it  continues  in  existence,  and  not  to  the  in- 
dividuals who  compose  it.  The  right  of  each  partner 
extends  only  to  a  share  of  what  may  remain  after  the 
payment  of  the  debts  of  the  firm  and  the  settlement  of 
its  accounts.  Growing  out  of  this  right,  or  rather  in- 
cluded in  it,  is  the  right  to  have  the  partnership  property 
applied  to  the  payment  of  the  partnership  debts  in  pref- 
erence to  those  of  any  individual  partner.  This  is  an 
equity  the  partners  have  as  between  themselves,  and  in 
certain  circumstances  it  inures  to  the  benefit  of  the  cred- 
itors of  the  firm.  The  latter  are  said  to  have  a  privilege 
or  preference,  sometimes  loosely  denominated  a  lien,  to 
have  the  debts  due  to  them  paid  out  of  the  assets  of  a 
firm  in  course  of  liquidation,  to  the  exclusion  of  the 
creditors  of  its  several  members.  Their  equity,  however, 
is  a  derivative  one.  It  is  not  held  or  enforceable  in  their 
own  right.  It  is  practically  a  subrogation  to  the  equity 
of  the  individual  partner,  to  be  made  effective  only 
through  him.  Hence,  if  he  is  not  in  a  condition  to  enforce 
it,  the  creditors  of  the  firm  cannot  be.  Bice  v.  Barnard, 
20  Vt.  479,  50  Am.  Dec.  54.  Appeal  of  the  York  County 
Bank,  32  Pa.  St.  446.  But  so  long  as  the  equity  of  the 
partner  remains  in  him,  so  long  as  he  retains  an  interest 
in  the  firm  assets,  as  a  partner,  a  court  of  equity  will 
allow  the  creditors  of  the  firm  to  avail  themselves  of 
his  equity,  and  enforce,  through  it,  the  application  of 
those  assets  primarily  to  payment  of  the  debts  due  them, 
whenever  the  property  comes  under  its  administration. 

u*  *  *  [The  Court  here  states  that  certain  assign- 
ments have  been  made,  etc.,  whereby  the  partnership 
assets,  before  the  filing  of  the  suit,  ceased  to  be  such.] 


REMEDIES  OF  CREDITORS  IN  EQUITY  895 

"The  effect  of  these  transfers  and  act  of  fusion  was 
very  clearly  to  convert  the  partnership  property  into 
property  held  in  severalty,  or,  at  least,  to  terminate  the 
equity  of  any  partner  to  require  the  application  thereof 
to  the  payment  of  the  joint  debts.  Hence  if,  as  we  have 
seen,  the  equity  of  the  partnership  creditors  can  be 
worked  out  only  through  the  equity  of  the  partners,  there 
was  no  such  equity  of  the  partners,  or  any  one  of  them, 
as  is  now  claimed,  in  1869,  when  this  bill  was  filed.  No 
one  of  the  partners  could  then  insist  that  the  property 
should  be  applied  first  to  the  satisfaction  of  the  joint 
debts,  for  his  interest  in  the  partnership  and  its  assets 
had  ceased.  *  *  *  Unless  therefore,  the  conveyances 
of  the  partners  in  this  case  and  the  act  of  fusion  were 
fraudulent,  the  bank  of  which  the  complainant  is  receiver 
has  no  claims  upon  the  property  now  held  by  the  New 
Orleans  and  Carrollton  Railroad  Company,  arising  out 
of  the  facts  that  it  is  a  creditor  of  the  partnership,  and 
was  such  a  creditor  when  the  property  belonged  to  the 
firm." 


Question  601:  In  what  way  may  the  right  of  the  partnership 
creditor  subject  the  partnership  assets  to  the  payment  of  his 
debt  be  lost? 


Sec.  448.    Partner  as  Creditor. 


(Note :  If  a  partner  is  a  creditor  of  the  partnership,  he  can- 
not prove  up  his  debt  in  competition  with  other  creditors.  This 
rule  is  stated  in  a  leading  English  case  as  follows :  ' '  The  rule  is, 
that  a  partner  in  a  firm,  against  which  a  commission  of  bank- 
ruptcy issues,  shall  not  prove  in  competition  with  the  creditors 
of  the  firm,  who  are  in  fact  his  own  creditors;  shall  not  take 
part  of  the  funds  to  the  prejudice  of  those  who  are  not  only 
creditors  of  the  partnership,  but  of  himself. ' '  Ex  parte  Sillitoe, 
Glyn  &  Jameson 's  Reports,  on  page  382. ) 


PART    XXIV 
DISSOLUTION  OF  THE  PARTNERSHIP 

Chapter  Eighty-four.       Dissolution  by  What  Acts. 

Chapter  Eighty-five.        Dissolution  by  Lapse  of  Time, 

Agreement  and  Transfer  of 
Partner's  Interest. 

Chapter  Eighty-six.  Dissolution  by  Death  of  Part- 
ner. 

Chapter  Eighty-seven.     Dissolution  by  Bankruptcy  and 

Court  Decree. 

Chapter  Eighty-eight.      Liquidation  and  Accounting  on 

Dissolution. 


CHAPTER    EIGHTY-FOUR 

DISSOLUTION  BY  WHAT  ACTS 

Sec.  449.    How  Partnerships  May  be  Dissolved. 

(Note:     Partnerships  may  be  dissolved: 

1.  By  act  of  the  parties: 

(1.)     By  lapse  of  time  and  accomplishment  of  object. 
(2.)     By  mutual  agreement  of  the  partners. 
(3.)     By  a  transfer  by  a  partner  of  his  interest. 

2.  By  act  of  law: 

(1.)     Death  of  the  partner. 

(2.)     Bankruptcy  of  the  partner. 

3.  By  judicial  decree: 

(1.)     On  account  of  internal  dissensions. 
(2.)     On  account  of  partner's  incapacity. 
(3.)     On  account  of  partner's  misconduct. 
(4.)     On  account  of  financial  failure  of  the  enterprise.) 
896 


CHAPTER    EIGHTY-FIVE 

DISSOLUTION  BY  LAPSE  OF  TIME,  AGREEMENT 
AND  TRANSFER  OF  PARTNER'S  INTEREST 


§  450.  Dissolution  by  lapse  of  time.       §  452.  Dissolution    by    transfer    of 
§  451.  Dissolution  by  mutual  agree-  partner's  interest, 

ment. 


Sec.  450.    Dissolution  by  Lapse  of  Time. 

Case  No.  602.    Howell  v.  Harvey,  5  Ark.  270. 
Point  Involved:    Whether  a  party  in  a  partnership 
at  will  is  entitled  to  withdraw  without  notice. 


Lacy,  J.:  "In  the  present  case  the  partnership  was 
to  continue  during  the  pleasure  of  the  contracting  par- 
ties. It  is  therefore  strictly  a  partnership  at  will,  and 
subject  to  the  rules  that  govern  such  agreement.  Chan- 
cellor Kent  says,  that  it  is  an  established  principle  of 
the  law  of  partnership,  that  if  it  be  without  any  definite 
period,  any  party  may  withdraw  at  a  minute's  notice 
when  he  pleases  and  dissolve  the  partnership.  The  exist- 
ence of  engagements  with  third  persons  will  not  prevent 
the  dissolution,  though  their  engagements  will  not  be 
affected  by  the  act.  He  admits  that  cases  may  occur 
where  reasonable  notice  might  be  advantageous,  but  he 
holds  it  not  to  be  requisite,  and  he  adds  that  ,a  party 
may,  in  a  case  free  from  fraud,  choose  an  unreasonable 
time  for  the  dissolution.  The  exception  he  makes  in  a 
case  of  fraud,  indicates  to  our  minds  that  the  rule  is  not 

897 


898  PARTNERSHIPS 

so  unbending  or  universal,  as  it  is  laid  down,  unless  the 
limitation  is  intended  to  include  those  cases  where  the 
renunciation  is  made  in  good  faith  and  at  a  proper  time. 
As  a  general  principle,  contracts  subsisting  during  pleas- 
ure, are  naturally  and  necessarily  dissolvable  by  the  mere 
exercise  of  the  will  of  either  of  the  parties;  and  this  is 
the  principle  according  to  the  civil  law  under  ordinary 
circumstances,  and  to  such  an  extent  is  it  carried  that 
a  positive  stipulation  against  the  dissolution  at  the  will 
of  either  of  the  parties  will  be  held  utterly  void,  as  in- 
consistent with  the  true  nature  and  intent  of  such  rela- 
tion. In  cases  of  equity,  we  think  the  true  rule  to  be 
this,  that  to  enable  one  partner  to  dissolve  at  will  the 
partnership,  two  things  must  occur;  first,  the  renuncia- 
tion of  the  partnership  must  be  in  good  faith,  and  sec- 
ondly, it  must  not  be  made  at  an  unreasonable  time. 


Question  602:  "Where  a  partnership  may  be  dissolved  at  will, 
what  notice  must  either  party  desiring  to  withdraw  give  the 
other?       _      , 

Sec.  451.    Dissolution  by  Mutual  Agreement 

(Note :  No  matter  for  what  term,  or  whether  for  any  definite 
term,  a  partnership  may,  of  course,  be  dissolved  by  mutual 
agreement.) 

Sec.  452.    By  Transfer  of  Partner's  Interest. 

(Note :  As  was  noted  at  the  beginning  of  this  subject,  a  part- 
nership is  conducted  on  a  purely  personal  basis,  and  therefore 
any  transfer  of  a  partner's  interest  without  the  consent  of  the 
other  partners  works  a  dissolution.    See  also  the  next  case. ) 


CHAPTER    EIGHTY-SIX 
DISSOLUTION  BY  DEATH  OF  PARTNER 

§  453.  Death    of    partner    dissolves  '  real    estate    on    death    of 

firm.  partner. 

§  454.  Title  of  surviving  partner.  §  456.  Rights  of  creditors. 

§  455.  Devolution      of      partnership 

Sec.  453.    Death  of  Partner  Dissolves  Firm. 
Case  No.  603.    Andrews  v.  Stinson,  254  111.  111. 

Mr.  Justice  Carter:    "*     *     * 

' '  The  principal  point  discussed  in  the  briefs  is  whether 
the  two  contracts  executed  by  said  executors  and  the 
surviving  partners,  Hand  and  Stinson  (in  connection 
with  the  authority  granted  in  Andrews'  will),  constituted 
a  continuation  of  the  old  or  the  creation  of  a  new  part- 
nership. The  death  of  either  partner  is,  ipso  facto,  from 
the  time  of  the  death  a  dissolution  of  the  partnership. 
(Eemick  v.  Emig,  42  111.  343;  Nelson  v.  Hayner,  66  id. 
487;  Douthart  v.  Logan,  190  id.  243.)  And  this  is  the 
general  rule  in  other  jurisdictions.  (22  Am.  &  Eng.  Ency. 
of  Law, — 2d  ed. — 199,  and  cases  cited;  30  Cyc.  620,  and 
cases  cited.)  It  is  sometimes  said  that  a  stipulation  in 
the  articles  of  partnership  providing  for  its  continua- 
tion after  the  death  of  the  partner  is  binding  upon  the 
heirs  or  representatives  of  the  deceased  partner.  Such 
agreements  may  be  binding  upon  the  surviving  partners 
(22  Am.  &  Eng.  Ency.  of  Law,— 2d  ed.— 202),  but  it  is 
at  the  option  of  the  representatives,  and  if  they  do  not 

899 


900  PARTNERSHIPS 

consent,  the  death  of  the  party  puts  an  end  to  the  part- 
nership. (3  Kent's  Com. — 14th  ed. — 57,  and  note;  Buck- 
ingham v.  Morrison,  136  111.  437.)  The  surviving  part- 
ners, on  the  dissolution  of  the  firm  by  the  death  of  one 
of  the  members,  are  charged  with  the  duty  of  proceeding 
at  once  to  settle  up  the  partnership  estate.  They  be- 
come trustees  as  to  the  deceased  partner's  interest,  and 
while  there  is  a  community  of  interest  between  them- 
selves and  the  representatives  of  the  deceased  partner 
in  the  adjustment  of  the  partnership  affairs,  the  part- 
nership, for  that  purpose,  only  has  a  limited  continuance. 
(Nelson  v.  Hayner,  supra;  Douthart  v.  Logan,  supra.) 
If  they  continue  business  they  do  it  at  their  own  peril. 
They  have  no  lawful  right  to  expend  the  money  of  the 
firm  in  new  enterprises,  however  necessary  the  expen- 
diture may  be  to  the  conduct  of  the  business.  (Remick 
v.  Emig,  supra.)  While  a  surviving  partner  in  mercan- 
tile business  may  make  small  purchases  of  material  to 
render  the  stock  more  salable,  he  has  no  power  to  make 
large  purchases  intended  to  continue  the  business. 
(Oliver  v.  Forrester,  96  111.  315.)  The  surviving  part- 
ners, under  the  law,  are  required  to  wind  up  and  close 
out  the  business,  and,  after  paying  the  firm  debts,  to 
distribute  the  assets  among  the  surviving  partners  and 
the  representatives  of  the  deceased  partner.  1  Woerner's 
Am.  Law  of  Administration,  (2d  ed.)  Sec.  124;  22  Am. 
&  Eng.  Ency.  of  Law,  (2d  ed.)  200;  30  Cyc.  636. 

"Where  there  are  provisions  in  the  articles  of  agree- 
ment or  will  for  the  continuance  of  the  business  after 
the  death  of  one  of  the  partners,  it  is  sometimes  inaccu- 
rately said  that  the  death  of  the  partner  does  not  dissolve 
the  partnership.  If  the  business  is  carried  on  after 
death  of  the  partner  under  such  arrangement  or  by  the 
agreement  of  the  heirs  or  personal  representatives  of 
the  deceased,  there  is,  in  effect  and  in  law,  a  new  part- 
nership, of  which  the  survivors  and  the  executors  or 
heirs  are  the  members,  the  new  members  becoming  liable, 
as  the  old,  to  the  creditors  of  the  firm.  (22  Am.  &  Eng. 
Ency.  of  Law, — 2d  ed. — 201,  and  cases  cited;  1  Woer- 


DISSOLUTION  901 

ner's  Am.  Law  of  Administration, — 2d  ed. — Sec.  123; 
Exchange  Bank  v.  Tracy,  77  Mo.  594;  McGrath  v.  Cowen, 
57  Ohio  St.  385 ;  Madison  v.  Farnham,  44  Minn.  95 ;  Jones 
&  Cunningham's  Pr. — 2d  ed. — 82;  Parsons  on  Partner- 
ship,— 3d  ed. — *439.  See  also,  1  Bates  on  Partnership, 
Sec.  52;  Owens  v.  Mackall,  33  Md.  382.)  A  reference 
to  the  authorities  will  disclose  that  while  the  above  rule 
of  law  is  not  followed  in  some  jurisdictions,  the  weight 
of  authority,  as  well  as  sound  reason,  is  in  accord  there- 
with. Under  this  reasoning  it  must  be  held  that  the 
agreements  entered  into  by  the  executors  and  surviving 
partners  created  a  new  partnership." 

Question  603:  What  was  the  principal  point  in  this  case? 
What  did  the  Court  decide  respecting  it?  What  effect  does 
death  have  on  a  partnership?  If  the  partnership  articles  pro- 
vide that  death  shall  not  affect  the  firm,  does  this  bind  the  ex- 
ecutor or  administrator?  What  is  the  duty  of  the  surviving 
partners  ? 

Sec.  454.    Title  of  Surviving  Partner  in  Assets  and  His 
Duties  in  Connection  Therewith. 

Case  No.  604.     Preston  v.  Fitch,  137  N.  Y.  41. 

Peckham,  J. :     ' '  *     *     * 

"It  has  been  settled  for  many  years  that  upon  the 
death  of  one  partner  the  survivor  becomes  the  legal 
owner  of  the  assets  and  has  the  exclusive  right  to  sell 
and  dispose  of  them  for  the  purpose  of  winding  up  the 
partnership  affairs,  and  the  survivor  does  not  take  such 
assets  in  the  character  of  a  trustee,  but  as  a  survivor 
holding  the  legal  title.  This  was  decided  lately  in  the 
case  of  Williams  v.  Whedon  (109  N.  Y.  333),  and  it  has 
been  the  acknowledged  law  for  a  long  number  of  years. 
But  although  the  surviving  partner  thus  takes  the  legal 
title  to  the  partnership  assets,  it  is  yet  plain  that  they 
come  to  him  impressed  with  a  certain  kind  of  a  trust 
founded  upon  his  duty  to  dispose  of  or  realize  upon  such 
assets  and  therefrom  to  pay  the  debts  of  the  late  firm 


902  PARTNERSHIPS 

and  to  pay  over  the  share  of  any  balance  that  may  then 
remain  and  which  may  belong  to  the  estate  of  such  de- 
ceased partner.  In  occupying  this  position  it  has  been 
said  by  some  judges  that  the  surviving  partner  is  not  a 
trustee  for  the  representatives  of  the  estate  of  the  de- 
ceased partner  and  does  not  bear  any  fiduciary  relations 
to  them.  This,  however,  is  more  a  question  of  exact 
accuracy  of  expression,  than  of  difference  of  opinion  as 
to  the  real  duties  which  a  surviving  partner  owes  to  the 
representatives  of  the  estate  of  the  deceased  partner. 

"It  is  admitted  by  all  that  certain  rights  are  conferred 
upon  the  representatives  of  the  estate  of  a  deceased 
partner  as  against  the  survivor,  and  among  them  is  a 
right  to  call  him  to  account  with  reference  to  his  conduct 
or  administration  of  the  assets  of  the  late  firm;  also  a 
right  to  compel  their  application  to  the  payment  of  the 
debts  of  the  firm,  and  to  summon  him  to  an  accounting 
and  to  the  payment  to  them  of  any  balance  that  may  be 
due  the  estate. 

"Lord  Westbury  in  Knox  v.  Gye  (supra),  while  say- 
ing that  the  surviving  partner  was  not  a  trustee  within 
the  strict  acceptation  of  that  term,  yet  admitted  that  he 
might  be  called  a  trustee  so  far  as  his  obligations  ex- 
tended to  the  representatives  of  the  estate  of  his  de- 
ceased partner,  but  that  when  these  obligations  had  been 
fulfilled,  or  discharged,  or  terminated  by  law,  the  sup- 
posed trust  was  at  an  end.  These  obligations  consist  in 
part  at  least  in  the  gathering  together  of  the  assets  of 
the  late  firm,  realizing  upon  them,  paying  the  debts  of 
the  firm,  and,  if  there  be  a  balance  remaining,  paying 
the  share  due  the  estate  of  the  deceased  partner  to  the 
representatives  thereof.  These  are  duties,  all  of  which 
the  representatives  of  the  estate  of  the  deceased  partner 
have  a  plain  interest  in  seeing  performed,  and  while 
Lord  "Westbury,  in  above-cited  case  from  the  House  of 
Lords,  said  the  relations  were  not  fiduciary,  and  Lord 
Chancellor  Hatherly  (page  678)  thought  they  were,  there 
was  no  difference  in  the  opinion  that  the  survivor  owed 
these  duties  above  spoken  of." 


DISSOLUTION  903 

Question  604:  Upon  the  death  of  one  partner  who  gets  title  to 
the  assets  of  the  firm  ?  What  right  has  the  personal  representa- 
tive of  the  deceased  partner? 

Sec.  455.    Devolution  of  Partnership  Real  Estate  on 
Death  of  Partner. 

Case  No.  605.    Darrow  v.  Calkins,  154  N.  Y.  503. 

Point  Involved:  To  what  extent  real  estate  owned  by 
the  partners  as  partners  will  on  the  death  of  the  part- 
ner be  converted  into  personalty  for  the  settlement  of 
the  firm  affairs.  The  doctrines  of  total  and  partial  con- 
version of  partnership  real  estate. 

Andrews,  C.  J. :     "*     *     * 

1  i  The  legal  nature  and  incidents  of  land  purchased  by 
a  copartnership  with  copartnership  funds  is  a  subject 
upon  which  great  diversity  of  opinion  exists  in  different 
jurisdictions.  The  English  rule,  after  many  fluctuations, 
has,  as  we  understand  the  cases,  come  to  be  that  lands 
so  purchased,  whether  purchased  for  or  used  for  partner- 
ship purposes  or  not,  provided  only  that  they  were 
intended  by  the  partners  to  constitute  a  part  of  the  part- 
nership property,  become  ipso  facto,  in  the  view  of  a 
court  of  equity,  converted  into  personalty  for  all  pur- 
poses, as  well  for  the  purpose  of  the  adjustment  of  the 
partnership  debts  and  the  claims  of  the  partners  inter  se 
as  for  the  purpose  of  determining  the  succession  as 
between  the  personal  representatives  of  a  deceased  part- 
ner and  the  heir  at  law.  Darby  v.  Darby,  3  Drew.  495 ; 
Essex  v.  Essex,  20  Beav.  442;  Lindl.  Partn.  (3rd  Ed.)  61 
et  seq.  This  doctrine  had  its  origin  in  England,  and  is 
said  to  have  grown  out  of  the  peculiar  law  of  inheritance 
there,  and  to  remedy  the  hardship  of  the  rule  which 
excludes  all  but  the  eldest  child  from  the  inheritance,  and 
of  the  other  rule  which  exempts  real  estate  in  the  hands 
of  the  heir  from  all  but  the  specialty  debts  of  the  ancestor. 
Fairchild  v.  Fairchild,  64  N.  Y.  471 ;  Shearer  v.  Shearer, 


904  PARTNERSHIPS 

98  Mass.  114.  *  *  *  The  general  doctrine  of  'out 
and  out'  conversion  adopted  by  the  English  courts  has 
not  been  followed  to  its  full  extent  in  this  and  many 
other  American  states.  There  is  no  policy  growing  out 
of  our  laws  of  inheritance  or  the  exemption  of  lands  from 
liability  for  simple  contract  debts,  which  requires  the 
application  of  such  a  doctrine  here.  The  lands  of  the 
ancestor  are  assets  for  the  payments  of  all  debts,  and  the 
persons  who  take  by  descent  and  under  the  statute  of 
distribution  are  substantially  the  same.  The  necessity 
for  an  absolute  conversion,  supposed  to  be  found  in  the 
nature  of  a  partnership  interest,  seems  hardly  sufficient 
to  justify  a  fiction  which  should  deprive  real  estate  of  a 
partnership  of  its  descendible  quality,  when  it  is  admitted 
on  all  hands  that  partnership  real  estate,  if  the  necessity 
arises,  is  first  subject  to  be  appropriated  in  equity  to  the 
discharge  of  partnership  obligations  and  the  adjustment 
of  the  equities  between  the  parties. 

"The  clear  current  of  the  American  decision  supports 
the  rule  that,  in  the  absence  of  any  agreement,  express  or 
implied,  between  the  partners  to  the  contrary,  partner- 
ship real  estate  retains  its  character  as  realty  with  all 
the  incidents  that  species  of  property  possesses  between 
the  partners  themselves,  and  also  between  a  surviving 
partner  and  the  real  and  personal  representatives  of  a 
deceased  partner,  except  that  each  share  is  impressed 
with  a  trust  implied  by  law  in  favor  of  the  other  partner 
that,  so  far  as  is  necessary,  it  shall  be  first  applied  to  the 
adjustment  of  the  partnership  obligations  and  the  pay- 
ment of  any  balance  found  to  be  due  from  the  one  partner 
to  the  other  on  winding  up  the  partnership  affairs.  To 
the  extent  necessary  for  these  purposes  the  character  of 
the  property  is,  in  equity,  deemed  to  be  changed  into 
personalty.  On  the  death  of  either  partner,  where  the 
title  is  vested  in  both,  the  share  of  the  land  standing  in 
the  name  of  the  deceased  partner  descends  as  real  estate 
to  his  heirs,  subject  to  the  equity  of  the  surviving  partner 
to  have  it  appropriated  to  accomplish  the  trust  to  which 
it  was  primarily  subjected.     The  working  out  of  the 


DISSOLUTION  905 

mutual  rights  which  grew  out  of  the  partnership  relation 
does  not  seem  to  require  that  the  character  of  the  prop- 
erty should  be  changed  until  the  occasion  arises  for  a 
conversion,  and  then  only  to  the  extent  required.  The 
American  rule  commends  itself  for  its  simplicity.  It 
makes  the  legal  title  subservient  in  equity  to  the  original 
trust.  It  disturbs  it  no  further  than  is  necessary  for  this 
purpose.  The  portion  of  the  land  not  required  for  part- 
nership equities  retains  its  character  as  realty,  and  it 
leaves  the  laws  of  inheritance  and  descent  to  their 
ordinary  operation.  It  would  be  useless  to  review  in 
detail  the  authorities  which  seem  to  us  to  maintain  what 
has  been  called  the  'American  Rule. '  We  refer  to  a  very 
few  of  them.  Buchanan  v.  Sumner,  2  Barb.  Ch.  167; 
Collumb  v.  Read,  24  N.  Y.  505;  Fairchild  v.  Fairchild, 
supra;  Shearer  v.  Shearer,  supra;  Shanks  v.  Klein,  104 
U.  S.  18.  If,  as  sometimes  happens,  the  title  to  part- 
nership real  estate  is  in  the  name  of  one  of  the  partners 
only,  on  the  death  of  the  other  partner,  his  equitable  title 
descends  to  his  heirs  or  goes  to  his  devisees  but  subject 
to  the  primary  claims  growing  out  of  the  partnership 
relation.  Fairchild  v.  Fairchild,  supra;  T.  Pars.  Partn. 
No.  272.  But  the  general  principles  to  which  we  have 
adverted  are  those  applied  in  courts  of  equity  in  deter- 
mining the  character  and  incidents  of  partnership  real 
estate,  in  the  absence  of  any  agreement,  express  or 
implied,  between  the  partners  on  the  subject. ' ' 

•  Question  605:  On  the  death  of  a  partner,  does  the  partnership 
real  estate  standing  in  his  name,  go  to  his  heirs  or  is  it  to  be  re- 
garded wholly  as  partnership  property? 

Sec.  456.    Rights  of  Creditors  of  Firm  as  Against  Sur- 
viving Partner  and  Estate  of  Deceased  Partner. 

Case  No.  606.    Henry  v.  Caruthers,  196  111.  136. 

Mr.  Justice  Boggs  :    ' '  *     *     *     At  the  common  law  a 
demand  against  a  co-partnership  was  regarded  as  a  joint 


906  PARTNERSHIPS 

debt,  and  after  the  death  of  one  of  the  co-partners  the 
right  of  action  at  law  was  against  the  surviving  partner 
or  partners.  Equity,  however,  afforded  a  remedy  against 
the  estate  of  the  deceased  partner  in  the  event  of  the 
insolvency  of  the  surviving  partner  or  partners.  The 
common  law  rule  was  subsequently  modified,  and  the 
rule  established  in  equity  that  all  partnership  debts 
should  be  deemed  joint  and  several,  and  that  a  right  of 
action  existed  at  law  against  the  surviving  partners,  and 
an  election  also  to  proceed  in  equity  against  the  estate  of 
the  deceased  partner,  whether  the  survivors  be  insolvent 
or  not.  Mason  v.  Tiffany,  45  111.  392;  Doggett  v.  Dill, 
108  id.  560. 

(Note :  It  is  the  rule  in  most  jurisdictions  that  the  partner- 
ship creditors  cannot  share  with  the  individual  creditors  of  the 
deceased  partner  in  the  division  of  his  estate,  until  the  individual 
creditors  are  satisfied,  unless  there  is  no  living  solvent  partner 
and  no  joint  estate.) 


CHAPTER    EIGHTY-SEVEN 

DISSOLUTION    BY    BANKRUPTCY    AND    COURT 

DECREE 

§  457.  Dissolution  by  bankruptcy.  §  458.  Dissolution  by  court  decree. 

Sec.  457.    Dissolution  by  Bankruptcy. 

(Note:  Bankruptcy  dissolves  the  firm.  See  Sec.  447  as  to 
right  of  creditors.) 

Sec.  458.    Dissolution  by  Court  Decree  Upon  Application 
of  Partner  Against  the  Other. 

Case  No.  607.    New  v.  Wright,  44  Miss.  202. 

Facts:  Bill  by  a  partner  to  dissolve  a  partnership 
formed  for  a  stated  term  of  five  years,  on  account  of  mis- 
conduct of  partner. 

Point  Involved:  Will  a  court  at  the  suit  of  one  part- 
ner decree  a  dissolution  of  the  firm  where  it  is  shown  that 
the  other  partner  is  guilty  of  misconduct  of  a  serious 
character  appertaining  to  partnership  affairs. 

Peyton,  C.  J. :  "•  *  *  The  remaining  question 
for  our  decision  is,  did  the  Court  err  in  overruling  the 
motion  for  the  appointment  of  a  receiver?  'It  must  be 
admitted,'  said  the  master  of  the  rolls  in  Madgwith  v. 
Wimble,  6  Beavan,  495,  'that  when  an  application  is  made 
for  a  receiver  in  partnership  cases,  the  Court  is  always 
placed  in  a  position  of  very  great  difficulty.  On  the  one 
hand,  if  it  grants  the  motion,  the  effect  of  it  is  to  put  an 

907 


908  PARTNERSHIPS 

end  to  the  partnership,  which  one  of  the  parties  claims  a 
right  to  have  continued;  and  on  the  other  hand,  if  it 
refuses  the  motion,  it  leaves  the  defendant  at  liberty  to 
go  on  with  the  partnership,  at  the  risk  and  probably  at 
the  great  loss  and  prejudice  of  the  dissenting  party. 
Between  these  difficulties,  it  is  not  very  easy  to  select 
the  course  which  is  best  to  be  taken,  but  the  Court  is 
under  the  necessity  of  adopting  some  mode  of  proceeding 
to  protect,  according  to  the  best  view  it  can  take  of  the 
matter,  the  interests  of  both  parties.' 

"  In  order  to  justify  the  dissolution  of  a  partnership, 
on  the  ground  of  misconduct,  abuse,  or  ill-faith  of  one  of 
the  parties,  it  is  not  sufficient  to  show  that  there  is  a 
temptation  to  such  misconduct,  abuse,  or  ill-faith,  but 
there  must  be  an  unequivocal  demonstration,  by  overt 
acts  or  gross  departures  from  duty,  that  the  danger  is 
imminent,  or  the  injury  already  accomplished :  Story  on 
Partnership,  464,  §  288.  Where  a  concern  of  any  char- 
acter or  kind,  covering  a  partnership,  is  broken  up  by 
controversial  suits,  and  it  is  apparent  that  there  can  be 
no  agreement  between  the  parties  in  interest  for  its  con- 
tinuance, a  receiver  will  be  appointed :  Williams  v.  Wil- 
son, 4  Sandf.  (N.  Y.)  Chan.  379;  Edwards  on  Receivers, 
330.  And  a  dissolution  of  a  partnership  may  be  granted 
and  a  receiver  appointed  on  account  of  the  gross  mis- 
conduct of  one  or  more  of  the  parties:  1  Story's  Eq.  635, 
§  672a.  To  authorize  the  appointment  of  a  receiver  there 
must  be  some  breach  of  the  duty  of  a  partner,  or  of  the 
contract  of  partnership :  Harding  v.  Glover,  18  Ves.  281. ' ' 

i 
Question  607:    Why  was  dissolution  and  a  receiver  asked  for 
in  this  case  ?    When  will  misconduct  of  a  partner  justify  dissolu- 
tion notwithstanding  the  term  has  not  expired? 

(Note:  A  partnership  may  be  dissolved  for  misconduct,  for 
financial  failure  with  no  relief  in  sight,  and  for  inability  of  the 
partners  to  work  in  reasonable  harmony.) 


CHAPTER    EIGHTY-EIGHT 

LIQUIDATION  AND  ACCOUNTING  ON  DISSOLU- 
TION 

Sec.  459.    The  Share  or  Liability  of  Each  Partner. 

Case  No.  608.     Shea  v.  Donahue,  15  Lea  (Tenn.)  160. 

Facts:  Suit  for  partnership  accounting  between  Shea 
and  Donahue,  partners  under  a  written  agreement  for 
one  year  "as  merchants  in  making,  buying  and  selling 
all  kinds  of  tinware,  stoves,  pumps,  etc."  And  it  pro- 
vided, "And  to  constitute  a  fund  for  the  purpose 
Timothy  Shea  has  paid  in  as  stock  one  thousand  dollars, 
which  will  constitute  a  common  stock,  to  be  used  and 
employed  between  us  in  buying  goods,  wares  and  mer- 
chandise. John  Donahue  being  a  practical  workman  and 
having  considerable  experience  in  the  above  named  busi- 
ness, it  is  agreed  that  he  will  give  the  business  his  entire 
personal  attention  and  the  benefit  of  his  experience,  to 
place  against  the  cash  furnished  by  said  Shea.  We  are 
to  bear  the  expenses  and  losses  jointly  and  share  the 
profits  equally.  The  capital  stock  is  not  to  be  withdrawn 
by  either  party  until  the  end  of  the  term,  but  to  be 
employed  as  capital,  unless  otherwise  mutually  agreed 
between  us  in  writing."  The  business  was  carried  on 
for  about  three  years.  On  dissolution,  Donahue  claims 
to  be  entitled  to  one-half  of  the  capital  advanced  by  Shea. 
The  chancellor  decided  that  Donahue  is  entitled  to  no 
part  of  the  capital.    He  appeals. 

Point   Involved:    Whether  one   who   contributes   his 

909 


910  PARTNERSHIPS 

time  and  skill  is  entitled  on  dissolution  to  a  share  in  the 
capital  paid  by  the  other  partner. 

Coopeb,  J. :  "  The  contention  of  the  defendant  is,  that 
by  the  terms  of  the  agreement  he  was  entitled  at  the  end 
of  one  year  to  an  equal  share  of  the  profits  of  the  busi- 
ness, and  to  one-half  of  the  capital  advanced  by  his  part- 
ner, and  this,  although  it  goes  without  saying  he  would 
retain  all  his  practical  experience  which  was  to  be  placed 
against  the  cash  furnished  by  his  partner.  But  the  agree- 
ment is  that  the  partners  are  only  to  'share  the  profits 
equally,'  not  the  profits  and  the  capital.  And  the  profits 
of  any  business  are  only  what  remains  after  deducting 
debts  and  expenses,  and  the  capital  paid  in.  Lindley  on 
Partn.  791,  806.  The  provision  that  the  capital  stock 
shall  constitute  a  common  stock  to  be  used  in  buying  the 
materials  and  wares  of  their  trade,  merely  designates  the 
mode  in  which  it  is  agreed  that  the  capital  shall  be 
invested.  And  the  further  provision  that  the  capital 
stock  shall  not  be  withdrawn  by  either  party  until  the  end 
of  the  term,  was  only  intended  to  restrain  the  partners 
from  drawing  funds  from  the  business  so  as  to  trench 
upon  the  capital  while  the  partnership  continued.  There 
is  nothing  in  the  article  of  agreement  to  take  the  case 
out  of  the  ordinary  one  of  a*partnership  in  profit  and  loss 
upon  unequal  capitals. 

"Of  course  the  articles  of  a  partnership  may  expressly 
provide  for  an  equal  division  of  the  assets,  upon  a  dis- 
solution, notwithstanding  an  unequal  advance  of  capital 
by  the  respective  partners.  The  same  result  may  follow 
a  continuous  course  of  dealing  upon  a  basis  which  implies 
such  equal  division.  For  if  there  is  no  evidence  from 
which  any  different  conclusion  as  to  what  was  agreed  can 
be  drawn,  the  shares  of  all  the  partners  will  be  adjudged 
equal,  upon  the  favorite  maxim  of  chancery,  that  equality 
is  equity.  But,  as  Mr.  Lindley  tells  us,  the  rule  is  when 
the  partners  have  advanced  unequal  capitals,  and  have 
agreed  to  share  profits  and  losses  equally,  without  more, 
that  each  partner  is  entitled  to  his  advance  before  divi- 


LIQUIDATION  911 

sion,  and  a  deficiency  in  the  capital  must  be  treated  like 
any  other  loss,  and  borne  equally  by  the  partners.  Lind- 
ley  Partn.  807. 

''The  only  authorities  adduced  by  the  learned  counsel 
of  the  defendant,  in  support  of  his  contention  in  this  case, 
are  to  the  effect  that  property  brought  into  the  partner- 
ship business  by  the  members  of  the  firm,  or  bought  with 
capital  advanced,  becomes  partnership  property,  and 
may  be  disposed  of  as  such  by  one  of  the  partners  under 
his  general  powers  as  a  member  of  the  firm.  And  so  it 
does  beyond  all  question,  for  the  very  object  of  contribut- 
ing capital,  either  in  property  or  money,  is  to  secure  a 
partnership  stock  for  the  purpose  of  carrying  on  the 
common  business.  But  this  fact  has  nothing  to  do  with 
the  settlement  between  the  partners  of  their  accounts  at 
the  end  of  the  partnership.  'By  the  capital  of  a  part- 
nership,' says  Mr.  Lindley,  'is  meant  the  aggregate  of  the 
sums  contributed  by  its  members  for  the  purpose  of  com- 
mencing or  carrying  on  the  partnership  business.  The 
capital  of  a  partnership  is  not  therefore  the  same  as  its 
property ;  the  capital  is  a  sum  fixed  by  the  agreements  of 
the  partners,  whilst  the  actual  assets  of  the  firm  vary 
from  day  to  day,  and  include  everything  belonging  to  the 
firm  and  having  any  money  value.  Moreover,  the  capital 
of  each  partner  is  not  necessarily  the  amount  due  to  him 
from  the  firm ;  for  not  only  may  he  owe  the  firm  money, 
so  that  less  than  his  capital  is  due  to  him,  but  the  firm 
may  owe  him  money  in  addition  to  his  capital,  e.  g.,  for 
money  loaned.  The  amount  of  each  partner's  capital 
ought  therefore  always  to  be  accurately  stated,  in  order 
to  avoid  disputes  upon  a  final  adjustment  of  accounts; 
and  this  is  more  important  where  the  capitals  of  the  part- 
ners are  unequal,  for  if  there  is  no  evidence  as  to  the 
amounts  contributed  by  them,  the  shares  of  the  whole 
assets  will  be  treated  as  equal.'  Lindley  Partn.  610. 
[1  Ewell's  Lindley,  2d  Am.  Ed.  320.]  The  same  author 
adds  in  another  place :  'When  it  is  said  that  the  shares  of 
partners  are  prima  facie  equal,  although  their  capitals 
are  unequal,  what  is  meant  is  that  the  losses  of  capital, 


912  PARTNERSHIPS 

like  other  losses,  must  be  shared  equally,  but  it  is  not 
meant  that  on  a  final  settlement  of  accounts  capitals  con- 
tributed unequally  are  to  be  treated  as  an  aggregate  fund 
which  ought  to  be  divided  between  the  partners  in  equal 
shares.'  Lindley,  Partn.  67.  On  the  contrary,  in  his 
chapter  devoted  to  partnership  accounts  [2  Lindley, 
Partn.  2d  Am.  Ed.  402],  he  expressly  tells  us  that  the 
assets  of  a  partnership  should  be  applied  as  follows : 

"  '1.  In  paying  the  debts  and  liabilities  of  the  firm  to 
non-partners. 

"  '2.  In  paying  to  each  partner  ratably  what  is  due 
from  the  firm  to  him  for  advances  as  distinguished  from 
capital. 

"  '3.  In  paying  to  each  partner  ratably  what  is  due 
from  the  firm  to  him  in  respect  of  capital. 

"  '4.  The  ultimate  residue,  if  any,  will  then  be 
divisible  as  profit  between  the  partners  in  equal  shares, 
unless  the  contrary  can  be  shown. ' 

"In  accordance  with  these  principles,  the  following 
decision  has  been  made  by  the  supreme  court  of  New 
York  in  a  case  cited  in  a  note  to  page  610  of  Lindley  on 
Partnership :  'Where  by  the  terms  of  the  agreement  the 
defendant  furnished  the  capital  stock,  and  the  plaintiff 
contributed  his  skill  and  services,  and  the  profits  of  the 
copartnership  were  to  be  equally  divided,  .the  plaintiff  is 
not  entitled  to  any  part  of  the  capital  stock  on  a  settle- 
ment of  the  affairs  of  the  partnership.  He  has  no  inter- 
est in  any  part  of  the  capital  excepting  so  far  as  in  the 
progress  of  the  business  the  same  may  have  been  con- 
verted into  profits.'  Conroy  v.  Campbell,  13  Jones  & 
Sp.  326.  The  case,  it  will  be  noticed,  is  exactly  in  point. 
And  to  the  same  effect  in  principle  are  Whitcomb  v.  Con- 
verse, 119  Mass.  38,  20  Am.  Rep.  311,  ante;  Knight  v. 
Ogden,  2  Tenn.  Ch.  473,  and  Shepherd,  ex  parte,  3  Tenn. 
Ch.  189.    No  case  has  been  found  to  the  contrary. 

"Chancellor's  decree  affirmed." 

(Note:    See  Mechem's  Elem.  of  Partn.  §§  305-308.) 

Question  608:  (1.)  If  A  contributes  capital  and  B,  skill 
and  time,  is  B  entitled  to  any  of  the  capital  on  dissolution  ?  Why  ? 


LIQUIDATION  913 

(2.)  How  are  the  assets  of  a  partnership  to  be  applied  upon 
a  dissolution? 

(3.)  Suppose  in  the  partnership  of  A  and  B  above  stated, 
there  is  a  loss  of  all  the  capital  and  a  further  indebtedness  which 
A  pays? 

(Note :  In  Lindley  on  Partnership,  8th  Ed.,  the  author  says : 
"The  only  case  that  practically  gives  rise  to  difficulty  is  where 
partners  have  advanced,  or  agreed  to  advance,  unequal  capitals, 
and  to  share  profits  and  losses  equally.  If  nothing  more  than 
this  is  agreed,  a  deficiency  of  capital  must  be  treated  like  any 
other  loss  and  the  assets  remaining  after  the  payment  of  all  debts 
and  advances  must  be  distributed  amongst  the  partners,  or  some 
of  them,  as  to  put  all  on  an  equality.  If  in  such  case  one  partner 
is  insolvent  and  unable  to  contribute  his  share  of  the  loss  of 
capital,  the  solvent  partners  are  not  bound  to  contribute  for  him, 
but  each  partner  is  to  be  treated  as  liable  to  contribute  an  equal 
share  of  such  loss,  and  the  assets  are  then  to  be  applied  in  paying 
to  each  partner  ratably  what  is  due  to  him  in  respect  of  capital. ") 


DIVISION  F 


CORPORATIONS 


DIVISION    P 

CORPORATIONS 

Part       XXV.  Introductory. 

Part      XXVI.  Corporate  Capacity  and  Powers. 

Part    XXVII.  Stock  and  Stockholders. 

Part  XXVIII.  Directors  and  Administrative  Officers. 

Part      XXIX.  Foreign  Corporations. 

PART    XXV 
INTRODUCTORY 

CHAPTER    EIGHTY-NINE 
DEFINITION  AND  THEORY 

§  460.  Corporations  defined.  §  464.  Generally  of  the  charter. 

§  461.  Corporations  as  entities.  §  465.  Corporations  de  facto. 

§  462.  Kinds  of  corporations.  §  466.  Promoters. 

§  463.  Purposes   for  which  corpora- 
tions may  be  formed. 

Sec.  460.    Corporations  Defined. 

Case  No.  609.    Thomas  v.  Dakin,  22  Wend.  (N.  Y.)  9. 

Facts:  Thomas  sues  on  three  bills  of  exchange  as 
president  of  an  association  called  The  Bank  of  Central 
New  York,  formed  under  a  statute  to  authorize  "the  busi- 

917 


918  CORPORATIONS 

ness  of  banking. ' '    Defendant  makes  a  technical  defense 
raising  the  question  whether  the  bank  is  a  corporation. 
Point  Involved:    The  definition  and  characteristics  of 
a  body  corporate. 

Mb.  Chief  Justice  Nelson:  "*  *  *  Are  these 
associations  [formed  under  the  law  in  question]  corpora- 
tions ?  In  order  to  determine  this  question,  we  must  first 
ascertain  the  properties  essential  to  constitute  a  cor- 
porate body,  and  compare  them  with  those  conferred 
upon  the  associations;  for  if  they  exist  in  common,  or 
substantially  correspond,  the  answer  will  be  in  the 
affirmative.  A  corporate  body  is  known  to  the  law  by  the 
powers  and  faculties  bestowed  upon  it,  expressly  or 
impliedly,  by  the  charter;  the  use  of  the  term  corpora- 
tion in  its  creation  is  of  itself  unimportant,  except  as  it 
will  imply  the  possession  of  these.  They  may  be  express- 
ly conferred,  and  then  they  denote  this  legal  being  as 
unerringly  as  if  created  in  general  terms.  It  has  been 
well  said  by  learned  expounders,  that  a  corporation 
aggregate  is  an  artificial  body  of  men,  composed  of  divers 
individuals,  the  ligaments  of  which  body  are  the  fran- 
chises and  liberties  bestowed  upon  it,  which  bind  and 
unite  all  into  one,  and  in  which  consists  the  whole  frame 
and  essence  of  the  corporation.  The  'Franchises  and 
liberties,*  or,  in  modern  language,  and  as  more  strictly 
applicable  to  private  corporations,  the  powers  and  facul- 
ties, which  are  usually  specified  as  creating  corporate 
existence,  are :  1.  The  capacity  of  perpetual  succession ; 
2.  The  power  to  sue  and  be  sued,  and  to  grant  and  receive 
in  its  corporate  name ;  3.  To  purchase  and  hold  real  and 
personal  estate;  4.  To  have  a  common  seal;  and  5.  To 
make  by-laws.  *  *  *  Any  one  comprehending  the 
scope  and  purpose  of  them,  at  this  day,  will  not  fail  to 
perceive  that  some  of  the  powers  above  specified  are  of 
trifling  importance,  while  others  are  wholly  unessential. 
For  instance,  the  power  to  purchase  and  hold  real  estate 
is  no  otherwise  essential  than  to  afford  a  place  of  busi- 
ness; and  the  right  to  use  a  common  seal,  or  to  make 


DEFINITION  AND  THEORY  919 

by-laws,  may  be  dispensed  with  altogether.  For  as  to 
the  one,  it  is  now  well  settled  that  corporations  may  con- 
tract by  resolution,  or  through  agents,  without  seal;  and 
as  to  the  other,  the  power  is  unnecessary,  in  all  cases 
where  the  charter  sufficiently  provides  for  the  govern- 
ment of  the  body.  The  distinguishing  feature,  far  above 
all  others,  is  the  capacity  conferred,  by  which  a  perpetual 
succession  of  different  persons  shall  be  regarded  in  the 
law  as  one  and  the  same  body  and  may  at  all  times  act 
in  fulfillment  of  the  objects  of  the  association  as  a  single 
individual.  In  this  way,  a  legal  existence,  a  body  cor- 
porate, an  artificial  being,  is  constituted ;  the  creation  of 
which  enables  any  number  of  persons  to  be  concerned  in 
accomplishing  a  particular  object,  as  one  man.  While 
the  aggregate  means  and  influence  of  all  are  wielded  in 
affecting  it,  the  operation  is  conducted  with  the  sim- 
plicity and  individuality  of  a  natural  person.  In  this 
consists  the  essence  and  great  value  of  these  institutions, 
Hence  it  is  apparent  that  the  only  properties  that  can  be 
regarded  strictly  as  essential,  are  those  which  are  indis- 
pensable to  mould  the  different  persons  into  this  artificial 
being,  and  thereby  enable  it  to  act  in  the  way  above 
stated.  When  once  constituted,  this  legal  being  created, 
the  powers  and  faculties  that  may  be  conferred  are  vari- 
ous— limited  or  enlarged,  at  the  discretion  of  the  legis- 
lature, and  will  depend  upon  the  nature  and  object  of  the 
institution,  which  is  as  competent  as  a  natural  person  to 
receive  and  enjoy  them.  We  may,  in  short,  conclude  by 
saying,  with  the  most  approved  authorities  at  this  day, 
that  the  essence  of  a  corporation  consists  in  a  capacity: 
1.  To  have  a  perpetual  succession  under  a  special  name, 
and  in  an  artificial  form ;  2.  To  take  and  grant  property, 
contract  obligations,  sue  and  be  sued  by  its  corporate 
name  as  an  individual;  and  3.  To  receive  and  enjoy  in 
common,  grants  of  privileges  and  immunities. 

"We  will  now  endeavor  to  ascertain  with  exactness  the 
powers  and  attributes  conferred  upon  these  associations 
by  virtue  of  the  statute.     *     *     * 

"1.    Upon  a  perusal  of  these  provisions,  it  will  appear 


920  CORPORATIONS 

that  the  association  acquires  the  power  to  raise  and  hold 
for  common  use  any  given  amount  of  capital  stock  for 
banking  purposes,  which,  when  subscribed,  is  made  per- 
sonal property,  and  the  several  shares  transferable  the 
same  and  with  like  effect  as  in  case  of  corporate  stock; 
to  assume  a  common  name  under  which  to  manage  all  the 
affairs  of  the  association ;  to  choose  all  officers  and  agents 
that  may  be  necessary  for  the  purpose,  and  remove  and 
appoint  them  at  pleasure.  It  will  hence  be  seen,  that 
although  the  association  may  be  composed  of  a  number 
of  different  persons,  holding  an  interest  in  the  capital 
stock,  its  operations  are  so  arranged  that  they  do  not 
appear  in  conducting  its  affairs;  all  are  so  bound 
together,  so  moulded  into  one,  as  to  constitute  but  a  single 
body,  represented  by  a  common  name,  or  names  (the 
knot  of  the  combination),  and  in  which  all  the  business 
of  the  institution  is  conducted  by  common  agents.  In 
this  way  it  purchases  and  holds  real  and  personal  prop- 
erty, contracts  obligations,  discounts  bills,  notes,  and 
other  evidences  of  debt,  receives  deposits,  buys  gold  and 
silver  bullion,  bills  of  exchange,  etc.,  loans  money,  sues 
and  is  sued,  etc. 

"This  artificial  being  possesses  the  powers  of  per- 
petual succession.  Neither  sale  of  shares,  nor  death  of 
shareholders  affect  it ;  if  one  should  sell  his  interest,  or 
die,  the  purchaser  or  representative,  by  operation  of  law, 
immediately  takes  his  place.  Sec.  19.  Nor  can  the 
insanity  of  a  member  work  a  dissolution.  Id.  Officers 
and  agents  for  conducting  the  business  of  the  association 
are  secured.  In  case  of  vacancy,  by  death  or  otherwise, 
the  place  may  at  once  be  filled.  Sec.  18.  For  the  entire 
duration,  therefore,  of  the  association,  and  which  may  be 
without  limit,  Sec.  16,  Sub.  5,  the  whole  body  of  share- 
holders, though  perpetually  shifting,  constitute  the  same 
uniform,  artificial  being  which  is  to  be  engaged  through 
the  instrumentality  of  officers  and  agents  in  conducting 
the  business  of  the  concern,  and  no  member  is  personally 
liable.  Sec.  23.  Then,  as  to  the  powers  conferred,  with- 
out again  specially  recurring  to  them,  it  will  be  seen  at 


DEFINITION  AND  THEORY  921 

once  that  the  associations  possess  all  that  are  deemed 
essential,  according  to  the  most  approved  authorities,  to 
constitute  a  corporate  body.  They  have  a  capacity:  1. 
To  have  perpetual  succession  under  a  common  name  and 
in  an  artificial  form;  2.  To  take  and  grant  property,  con- 
tract obligations,  to  sue  and  be  sued  by  its  corporate 
name,  in  the  same  manner  as  an  individual ;  3.  To  receive 
grants  of  privileges  and  immunities,  and  to  enjoy  them 
in  common.  All  these  are  expressly  granted,  and  many 
more,  besides  the  general  sweeping  clause,  'to  exercise 
such  incidental  powers  as  shall  be  necessary  to  carry  on 
such  business'  (meaning  the  business  of  banking),  under 
which  even  the  seal  and  right  to  make  by-laws  are  clearly 
embraced,  if  essential,  in  conducting  the  affairs  of  the 
institution.' ' 

Question  609:  (1.)  How  does  this  opinion  define  a  corpora- 
tion ? 

(2.)     What  are  the  inherent  powers  of  corporations? 

(3.)  Did  the  Court  decide  that  the  company  under  considera- 
tion was  a  corporation  ? 

(Note :  Of  course  it  is  unusual  for  any  corporate  officer  to 
sue  or  be  sued  in  its  behalf.  Almost  universally  the  corporation 
must  sue  and  be  sued  in  its  own  name  as  an  individual.) 

Case  No.  610.  The  Overland  Cotton  Mill  Co.  et  al.  v. 
The  People,  32  Colo.  263. 

Facts:  Suit  to  enforce  a  penal  statute  providing  in 
substance  that  any  person  who  shall  hire  and  employ  a 
child  under  fourteen  years  of  age  in  any  mill  or  factory, 
shall  be  guilty  of  a  misdemeanor  and  punished  by  fine. 

Point  Involved:  Whether  a  corporation  is  a  person 
within  a  penal  statute  employing  that  word. 

Chief  Justice  Gabbebt:    "*     *     * 

* '  The  Overland  Cotton  Mill  Company  is  a  corporation 
organized  under  the  laws  of  this  state,  and  it  is  argued 
that,  because  the  statute  only  says  that  'any  person'  who 
shall  employ  children  under  the  age  of  fourteen  years  in 
any  mill  or  factory  shall  be  deemed  guilty  of  violating  its 


922  CORPORATIONS 

provisions,  that,  therefore,  a  corporation,  in  its  capacity 
as  such,  cannot  be  reached  in  a  prosecution  of  this  char- 
acter. In  other1  words,  because  the  statute  does  not 
specify  corporations,  that  they  are  exempted  from  the 
statutory  provision  on  the  subject  of  the  employment  of 
children  under  the  age  of  fourteen  years.  *  *  * 
Prima  facie,  the  word  'person,'  in  a  penal  statute  which 
is  intended  to  inhibit  an  act,  means  *  person  in  law;'  that 
is,  an  artificial,  as  well  as  a  natural,  person,  and  therefore 
includes  corporations,  if  they  are  within  the  spirit  and 
purpose  of  the  statute.  The  Pharmaceutical  Assn.  v. 
The  London  &  P.  S.  A.,  Limited,  5  Appeal  Cases  (Law 
Eeports)  857;  7  Enc.  of  Law  (2  Ed.)  841;  1  Clark  & 
Marshall's  Private  Corp.,  Sec.  252 ;  Bishop's  Stat.  Crimes 
(3  Ed.)  Sec.  212;  Stewart  v.  The  Waterloo  Turn  Verein, 
71  Iowa,  226. 

"  Whether  corporations  are  included  within  the  statute, 
depends  largely  upon  its  object.  Pharmaceutical  Assn. 
v.  London  &  P.  S.  A.,  Limited,  supra.  The  purpose  of 
the  statute,  as  indicated  by  its  title,  was  to  prohibit  the 
employment  of  children  under  fourteen  years  of  age  in 
certain  kinds  of  work.  It  is  common  knowledge  that  the 
places  which,  by  the  statute,  children  under  the  age  of 
fourteen  years  are  inhibited  from  working  in,  are  oper- 
ated largely  by  corporations.  Whether  such  places  were 
operated  by  individuals  or  corporations  could  make  no 
difference  with  respect  to  the  employment,  for  it  would 
be  just  as  detrimental  to  the  child  in  one  instance  as  in 
the  other.  *  *  *  Corporations,  therefore,  are  clearly 
within  the  spirit  and  purpose  of  the  statute,  because  its 
ultimate  object  was  to  prevent  children  under  a  given 
age  from  being  employed  in  specified  work. 

"That  the  statute  provides  for  imprisonment  if  the 
fine  imposed  is  not  paid,  is  not  an  objection  which  a  cor- 
poration can  urge  against  its  enforcement.  True,  the 
corporation  cannot  be  imprisoned,  but  the  fine  can  be 
collected  through  the  means  provided  for  the  collection 
of  money  judgments.  Commonwealth  v.  Pulaski  Agr. 
Assn.,  92  Ky.  197.' * 


DEFINITION  AND  THEORY  923 

Question  610:  (1.)  When  will  a  statute  referring  to  M  per- 
sons ' '  be  deemed  to  refer  to  corporations  ? 

(2.)     When  not? 

(3.)  It  was  provided  by  law  that  the  county  judge  should 
upon  application  of  persons  paying  one-third  of  the  taxes  on 
real  estate  of  a  certain  county,  order  a  vote  to  be  taken  to  ascer- 
tain if  the  qualified  voters  desired  the  removal  of  the  court 
house.  An  application  was  made  signed  by  certain  parties  pay- 
ing one-third  the  taxes,  and  among  the  applicants  and  to  make  up 
the  requisite  amount,  certain  corporations  were  included. 
Should  the  judge  order  the  vote  ?  Crawford  v.  Supervisors,  87 
Va.  110. 

Case  No.  611.    In  re  Estate  of  Speed,  216  111.  23. 

Facts:  The  Illinois  Act  of  1901,  exempts  from  the 
inheritance  tax  of  Illinois  property  devised  to  the  use  of 
religious,  educational  or  charitable  corporations.  Fannie 
Speed,  deceased,  by  her  will,  devised  certain  real  estate 
in  the  city  of  Chicago  to  the  Board  of  Education  of  the 
Kentucky  Annual  Conference  of  the  Methodist  Episcopal 
Church,  a  corporation  of  Kentucky,  with  power  to  form 
an  educational  fund  for  the  promotion  of  literature,  edu- 
cation and  religion  in  Kentucky.  It  is  sought  to  subject 
the  devise  to  the  inheritance  tax.  The  estate  claims  to 
come  within  the  exemption.  The  state  of  Illinois  claims 
that  the  exemption  does  not  apply  to  foreign  corpora- 
tions. 

Point  Involved:  Whether  a  state  grant  of  immuni- 
ties or  privileges  can  favor  a  domestic  over  a  foreign 
corporation  without  conflict  with  the  provision  of  the 
federal  constitution :  ' '  The  citizens  of  each  state  shall  be 
entitled  to  all  the  privileges  and  immunities  of  the  citi- 
zens of  the  several  states;"  whether  a  corporation  is  a 
citizen  within  such  provision. 

Mr.  Justice  Boggs  :  * '  *  *  *  It  has  frequently  been 
declared  to  be  a  well  established  principle  of  constitu- 
tional law  that  a  corporation  is  not  a  citizen  within  the 
first  clause  of  Sec.  2,  of  Article  4,  of  the  Constitution  of 
the  United  States,  which  declares  the  citizens  of  each 


924  CORPORATIONS 

state  shall  be  entitled  to  all  the  privileges  and  immunities 
of  citizens  of  the  several  states.  *  *  *  A  corporation 
is  a  'person*  within  the  meaning  of  the  concluding  clause 
of  the  first  section  of  the  14th  amendment,  which  declares 
that  no  state  shall  deprive  any  person  of  life,  liberty  or 
property  without  due  process  of  law  or  deny  to  any  per- 
son within  its  jurisdiction  the  equal  protection  of  its 
laws.     *     *     *" 

Question  611:  (1.)  Is  a  corporation  a  " citizen"  within  the 
provisions  of  the  United  States  Constitution  ? 

(2.)     Is  it  a  "person"  within  provisions  using  that  word  ? 

Sec.  461.    Corporations  as  Entities. 

Case  No.  612.  Parker  v.  Bethel  Hotel  Co.,  96  Tenn. 
252,  31  L.  R.  A.  706. 

Facts:  Lucius  Frier  son  on  August  28,  1886,  pur- 
chased from  the  other  stockholders  all  the  stock  of  the 
Bethel  Hotel  Company,  a  corporation  organized  for  hotel 
purposes.  Thereafter  he  used  the  property  as  his  own, 
leasing  it,  collecting  the  rents,  etc.  He  held  the  prop- 
erty in  this  manner  for  seven  years  during  which  there 
were  no  stockholders '  or  directors '  meetings  and  no  cor- 
porate activity.  In  January,  1892,  he  conveyed  in  his 
own  name  by  deed  of  trust  all  the  property  of  the  cor- 
poration to  one  W.  J.  "Webster,  as  an  assignment  for  the 
benefit  of  his  personal  creditors.  He  had  from  time  to 
time  borrowed  money  from  various  parties  giving  the 
shares  of  stock  held  by  him  as  security.  In  his  deed  of 
assignment  to  Webster,  he  did  not  provide  for  these 
creditors  who  held  corporate  stock.  These  creditors  now 
file  a  bill  in  equity  to  annul  the  trust  deed  to  Webster,  to 
decree  the  dissolution  of  the  hotel  company,  to  sell  its 
property  and  distribute  the  proceeds  among  the  various 
holders  of  its  stock.  Frierson  claims  that  the  corpora- 
tion was  dissolved  by  the  sale  to  him  of  all  of  the  stock 
and  that  he  had  an  equitable  title  to  all  of  its  property 
by  reason  of  becoming  the  sole  owner  of  its  stock. 


DEFINITION  AND  THEORY  925 

Point  Involved:  Whether  a  stockholder  in  a  corpora- 
tion owning  all  of  its  stock  thereby  becomes  the  owner  of 
all  its  property  and  can  convey  the  same  in  his  own  name. 
Generally  of  the  distinction  between  a  corporation  and  its 
stockholders. 

Bradford,  J. :  (After  discussing  the  facts  and  holding 
that  the  corporation  had  never  been  dissolved)  '■*•     *     * 

'  ■  Defendants  insist  that  the  alleged  equitable  estate  of 
Lucius  Frierson  in  the  property  of  the  Bethel  Hotel  Com- 
pany did  not  depend  alone  upon  the  dissolution  of  the 
corporation,  but  resulted  also  from  the  fact  that  he  was 
the  sole  owner  of  all  its  capital  stock.  The  proposition 
is  that,  if  one  person  owns  all  of  the  shares  of  stock  of  a 
corporation  which  owes  no  debts,  he,  in  virtue  of  such 
ownership,  becomes  the  equitable  owner  of  all  its  prop- 
erty, or  at  least  may  sell  and  dispose  of  it  by  deed,  if 
he  chooses  to  do  so.  This  proposition  is  argued  by 
counsel  for  defendants  with  force  and  ability,  and  is  sup- 
ported by  some  authority.  It  has  found  favor  with  the 
supreme  court  of  Maryland,  Swift  &  Smith,  65  Md.  428, 
433,  57  Am.  Rep.  336.  But  the  decision  of  that  learned 
Court  is  opposed  by  the  current  of  authority,  and  seems 
to  us  to  overlook  and  ignore  certain  principles  that  are 
fundamental.  A  corporation  and  its  shareholders,  are 
distinct  legal  entities.  In  Keith  v.  Clark,  4  Lea,  718,  this 
Court  held  that  notwithstanding  the  state  owned  all  of 
the  stock  in  the  Bank  of  Tennessee,  'the  bank  and  the 
state  are  entirely  different  legal  entities ;  ■  and  in  Lillard 
v.  Porter,  2  Head.  177,  it  was  said:  'Stockholders  are 
totally  distinct  from  the  corporation.'  Important  con- 
sequences result  from  this  rule.  The  shareholders  are 
neither  responsible  for  the  debts,  nor  the  torts  of  the 
corporation.  In  the  absence  of  special  circumstances, 
the  shareholders  cannot  be  parties,  either  plaintiffs  or 
defendants,  in  actions  respecting  corporate  rights,  nor 
have  they  any  title  or  interest  in  the  property  of  the  cor- 
poration. 'Shareholders,'  says  Thompson,  'are  not 
joint  tenants,  or  in  any  other  sense  co-owners  of  the  cor- 


926  CORPORATIONS 

porate  property,  either  before  or  after  its  dissolution. 
The  title  to  it  rests  exclusively  in  the  legal  entity  called 
the  corporation.  A  share  of  the  capital  stock  merely 
gives  the  right  to  partake  according  to  the  amount  put 
into  the  fund,  of  the  surplus  profits  of  the  corporation, 
and  ultimately  on  the  dissolution  of  it,  of  so  much  of  the 
fund  thus  created  as  remains  unimpaired,  and  is  not 
liable  for  debts  of  the  corporation. '  1  Thomp.  Corp. 
1071.  As  the  shareholders  have  no  direct  interest  in  the 
corporate  property,  they  cannot  convey  the  real  estate  of 
the  corporation,  though  all  join  in  the  deed.  In  Wheelock 
v.  Moulton,  15  Vt.  519,  Redfield,  J.,  stated  the  reasons 
for  the  rule  in  his  usual  clear  and  accurate  style.  *  *  * 
And  in  Humphreys  v.  McKissock,  140  U.  S.  304,  35  L.  ed. 
473,  Mr.  Justice  Field,  discussing  the  same  question,  said : 
'The  property  of  a  corporation  is  not  subject  to  the  con- 
trol of  individual  members,  whether  acting  separately  or 
jointly.  They  can  neither  encumber  nor  transfer  that 
property,  or  authorize  others  to  do  so.  The  corporation 
— the  artificial  being  created — holds  the  property,  and 
alone  can  mortgage  or  transfer  it;  and  the  corporation 
acts  through  its  officers,  subject  to  the  conditions  pre- 
scribed by  law.'  A  very  instructive  case  on  this  ques- 
tion is  Baldwin  v.  Canfield,  26  Minn.  43.  The  facts  of 
that  case  were  very  similar  to  those  of  this  case  and  the 
direct  questions  now  under  consideration  were  passed 
upon.  The  opinion  of  the  Court  was  in  accord  with  the 
cases  above  quoted." 

Question  612:  (1.)  How  did  the  question  in  this  case  come 
to  be  raised? 

(2.)  Are  the  shareholders  of  a  corporation  liable  for  its 
debts?    For  its  torts? 

(3.)  If  a  corporation  owes  a  debt  and  is  sued,  are  its  stock- 
holders necessary  or  proper  parties  to  the  suit?  If  it  sues  on 
a  debt  owing  to  it,  can  or  must  its  stockholders  join  in  the  suit  ? 

(4.)  Are  the  shareholders  joint  owners  of  the  corporate 
property?  , 

(5.)  State  the  form  in  which  a  deed  of  the  property  of  the 
corporation  should  be  made  and  signed. 


DEFINITION  AND  THEORY  927 

(6.)  The  A  company  is  a  public  service  corporation  and  has 
the  right  of  eminent  domain.  All  of  its  stock  is  held  by  the 
B  company,  a  manufacturing  company,  not  having  such  right. 
The  A  company  seeks  to  condemn  M's  land  for  its  proper  cor- 
porate purposes,  M  defends  on  the  ground  that  as  the  B  com- 
pany owns  all  the  stock,  the  proceedings  are  really  by  the  B 
company.  Is  this  defense  good?  (Assume  for  the  purposes  of 
this  question  that  such  ownership  of  stock  is  legal. ) 

Case  No.  613.  Peoples  Pleasure  Park  Co.  Inc.  and 
others,  v.  Rohleder,  109  Va.  439. 

Facts:  Suit  to  set  aside  a  deed  to  the  Peoples  Pleas- 
ure Park  Co.,  Inc.,  averring  that  the  said  corporation  is 
composed  exclusively  of  negroes,  and  setting  up  as 
grounds  therefor  that  the  land  was*  subject  to  a  restric- 
tion in  former  deeds  as  follows :  i '  The  title  to  this  land 
never  to  rest  in  a  person  or  persons  of  African  descent. ' ' 

Cabdwell,  J.:     "*     *     * 

"  Aside  from  the  question,  whether  or  not  appellee 
could  obtain  the  relief  she  asks  against  appellants — that 
is,  an  annulment  of  the  conveyance  to  appellant,  Peoples 
Pleasure  Park  Co.,  Inc. — on  the  ground  that  the  restric- 
tion on  the  right  of  alienation  of  any  of  the  Fulton  Park 
land  to  'a  person  or  persons  of  African  descent*  or 
'colored  person'  had  been  violated  by  a  sale  of  a  part  of 
the  land  to  said  appellant,  the  bill  fails  to  allege  facts 
showing  a  violation  of  the  restriction,  and  should  have 
been  dismissed  upon  the  demurrers  thereto.  Such  a  con- 
veyance, by  no  rule  of  construction,  vests  the  title  to  the 
property  conveyed  in  'a  person  or  persons  of  African 
descent.'     *     *     * 

"In  Green's  Brice,  Ultra  Vires  (£nd  Am.  Ed.),  §  1,  2, 
it  is  said,  that '  a  corporation  is  a  person  which  exists  in 
contemplation  of  law  only,  and  not  physically. ' 

"The  same  author,  in  commenting  on  Kyd's  definition, 
says:  'But  sufficient  stress  is  not  laid  upon  that  which 
is  its  real  characteristic  in  the  eye  of  the  law,  viz.,  its 
existence  separate  and  distinct  from  the  individual  or 
individuals    composing   it.     *     *     *     This    is    the    one 


928  CORPORATIONS 

important  fact.  The  members  of  a  corporation  aggre- 
gate, and  the  one  individual  who  is  constituted  a  corpora- 
tion sole,  may,  from  their  connection  with  such,  have 
rights  and  privileges,  and  be  under  obligations  and  duties, 
over  and  above  those  affecting  them  in  their  private 
capacity ;  but  they  get  them  by  reflection,  as  it  were,  from 
the  corporation.  They  individually  are  not  the  corpora- 
tion— cannot  exercise  the  corporate  powers,  enforce  the 
corporate  rights,  or  be  responsible  for  the  corporate 
acts." 

Question  613:  Did  the  owner  of  this  land  violate  the  restric- 
tion in  the  deed  ?    Why  ? 

(Note :  All  restrictions  on  the  use  of  real  estate  are  construed 
strictly,  and  will  not  be  extended  by  implication. ) 

Case  No.  614.    Russell  v.  Temple,  3  Davis  Abridg.  108. 

Facts:  Thomas  Russell  died  leaving  surviving  his 
widow  and  several  heirs  at  law.  By  the  Massachusetts 
law,  the  widow  had  a  dower  interest  in  the  real  estate  of 
the  deceased,  which  was  an  estate  for  life  in  one-third 
thereof,  and  an  absolute  ownership  in  one-third  of  his 
personal  property,  the  other  two-thirds  going  to  the 
heirs.  Russell  had  shares  in  a  corporation  which  prin- 
cipally owned  real  estate.  It  was  contended  on  the  part 
of  the  widow  that  she  should  take  absolutely  one-third 
of  the  shares  as  personal  property,  and  on  the  part  of  the 
heirs  that  she  had  but  a  dower  interest  (or  life  estate) 
therein. 

Point  Involved:  Whether  the  shares  are  personal 
property  regardless  of  the  nature  of  the  property  owned 
by  the  corporation. 

<<*     *     * 

"For  the  heirs  it  was  urged  that  these  shares  were 
real  estate,  because  it  was  said  that  the  estates  were  real 
in  the  corporations ;  annexed  to  the  soil ;  and  that  if  these 


DEFINITION  AND  THEORY  929 

estates  in  the  corporation  were  real,  the  estate  of  the 
individual  members  in  them  followed  their  nature,  and 
were  real;  and  that  the  frequent  declarations  of  the 
legislature  declaring  such  shares  personal  estate,  at  least 
show  a  doubt :  that  when  one  has  a  right  to  receive  rent, 
he  has  only  a  right  to  receive  a  sum  of  money ;  yet  it  does 
not  follow  that  his  estate  is  not  real  estate,  out  of  which 
his  rent  issues. 

"The  judgment  of  the  Court  was,  that  these  shares 
were  personal  estate,  and  distribution  was  ordered 
accordingly.  The  principal  reason  of  the  decision  appears 
to  be,  because  the  Court  considered  that  the  individual 
member,  or  shareholder,  had  only  a  right  of  action  for  a 
sum  of  money,  his  part  of  the  net  profits  or  dividends. 
And  so  the  law  has  been  held  to  be  since  this  decision  was 
made." 

Question  614:  State  the  contest  in  this  case  and  what  the 
Court  decided. 

Case  No.  615.  State,  ex.  rel.  Watson  v.  Standard  Oil 
Co.,  49  Ohio  St.  137. 

Facts:  Suit  by  the  state  of  Ohio,  upon  the  informa- 
tion of  Watson,  its  attorney  general,  to  oust  the  Standard 
Oil  Company  of  its  right  to  be  a  corporation  in  the  state 
of  Ohio,  on  the  ground  that  it  had  abused  its  corporate 
franchises  by  becoming  a  party  to  agreements  against 
public  policy,  namely,  certain  agreements  constituting  it 
a  " trust."  Defendant  answered:  "That  said  agree- 
ments were  agreements  of  individuals  in  their  individual 
capacity  and  with  reference  to  their  individual  property, 
and  were  not  nor  were  they  designed  to  be  corporate 
agreements,  and  defendant  denies  that  said  agreements 
have  illegally  affected  it  in  its  corporate  capacity  or  that 
defendant  has  permitted  its  corporate  powers,  business 
and  property  to  be  exercised,  conducted,  and  controlled 
in  an  illegal  manner."  The  individuals  named  in  the 
trust  agreement  were  the  chief  owners  of  the  stock  of  the 
Standard  Oil  Company,  owning  the  greater  part  of  its 
stock. 


930  CORPORATIONS 

Minshall,  J. :  ' '  Three  questions  arise  upon  the  plead- 
ings :  1.  Should  the  defendant,  The  Standard  Oil  Com- 
pany, be  regarded  as  a  party  in  its  corporate  capacity,  to 
the  agreement  constituting  the  Standard  Oil  Trust.  2. 
Had  the  company  power  to  become  a  party  to  such  an 
agreement.  3.  If  so,  is  the  right  of  the  state  to  demand 
a  forfeiture  of  its  corporate  franchises,  or  of  the  power 
to  make  and  perform  such  agreements,  barred  by  lapse 
of  time. 

"1.  It  will  be  observed,  on  reading  the  answer,  that 
while  the  defendant  denies  that  it '  entered  into  or  become 
a  party  to  either  or  both  of  the  agreements  in  said  peti- 
tion set  forth,'  and  also,  'denies  that  it  has  at  any  time  or 
in  any  manner  acquiesced  in,  or  observed,  performed  or 
carried  out  either  or  both  of  said  agreements, '  it  does  not 
deny  the  averment  of  the  petition,  that '  all  of  the  owners 
and  holders  of  its  capital  stock,  including  all  the  officers 
and  directors  of  said  company,  signed  said  agreements. ' 
Nor  could  it  have  been  the  intention  to  do  so,  as  the 
answer  proceeds  to  admit,  'that  it,'  the  corporation,  'is 
informed  and  believes  that  the  individuals  named  in  the 
agreement,  being  the  same  individuals  who  executed'  it, 
'did  enter  into  the  agreements  set  forth'  in  the  petition; 
claiming  'that  said  agreements  were  agreements  of 
individuals  in  their  capacity  and  with  reference  to 
their  individual  property,  and  were  not,  nor  were  they 
designed  to  be,  corporate  agreements.'  The  claim  is 
based  upon  the  argument,  that  the  corporation  is  a  legal 
entity  separate  from  its  stockholders,  that  in  it  are  vested 
all  the  property  and  powers  of  the  company,  and  can 
only  be  affected  by  such  acts  and  agreements  as  are  done 
or  executed  on  its  behalf  by  its  corporate  agencies  acting 
within  the  legitimate  scope  of  their  powers.  That  its 
stockholders  are  not  the  corporation,  that  their  shares 
are  their  individual  property,  and  that  they  may  each  and 
all  dispose  of,  and  make  such  agreements  affecting  their 
shares,  as  best  suit  their  private  interests;  and  that  no 
such  acts  and  agreements  of  stockholders,  subservient  of 
their  private  interests,  can  be  ascribed  to  the  company  as 


DEFINITION  AND  THEORY  931 

a  separate  entity,  though  done  and  concurred  in  by  each 
and  all  of  its  stockholders. 

4 'The  general  proposition  that  a  corporation  is  to  be 
regarded  as  a  legal  entity,  existing  separate  and  apart 
from  the  natural  persons  composing  it,  is  not  disputed; 
but  that  the  statement  is  a  mere  fiction,  existing  only  in 
idea,  is  well  understood,  and  not  controverted  by  any  one 
who  pretends  to  accurate  knowledge  on  the  subject.  It 
has  been  introduced  for  the  convenience  of  the  company 
in  making  contracts,  in  acquiring  property  for  corporate 
purposes,  in  suing  and  being  sued,  and  to  preserve  the 
limited  liability  of  the  stockholders,  by  distinguishing 
between  the  corporate  debts  and  property  of  the  com- 
pany, and  of  the  stockholders  in  their  capacity  as 
individuals.  All  fictions  of  law  have  been  introduced  for 
the  purpose  of  convenience  and  to  subserve  the  ends  of 
justice.  It  is  in  this  sense  that  the  maxim  in  fictione 
juris  subsistit  aequitas,  is  used,  and  the  doctrine  of  fic- 
tions applied.  But  when  they  are  urged  to  an  intent  and 
purpose  not  within  the  reason  and  policy  of  the  fiction 
they  have  always  been  disregarded  by  the  courts. 
Broom's  Legal  Maxims,  130.  'It  is  a  certain  rule,'  says 
Lord  Mansfield,  C.  J.,  'that  a  fiction  of  law  shall  never  be 
contradicted  so  as  to  defeat  the  end  for  which  it  was 
invented,  but  for  every  other  purpose  it  may  be  con- 
tradicted. '  Johnson  v.  Smith,  2  Burr.  962.  '  They  were 
invented,'  says  Brinkerhoff,  J.,  in  Wood  v.  Ferguson,  7 
Ohio  St.  291,  'for  the  advancement  of  justice,  and  will 
be  applied  for  no  other  purpose. '  And  it  is  in  this  sense 
that  they  have  been  constantly  understood  and  applied  in 
this  state.  Hood  v.  Brown,  2  Ohio  R.  269;  Eossman  v. 
McFarland,  9  Ohio  St.  381;  Collard's  Adm'r  v.  Donald- 
son, 17  Ohio  R.  266. 

"No  reason  is  perceived  why  the  principles  applicable 
to  fictions  in  general,  should  not  apply  to  the  fiction  that 
a  corporation  is  a  personal  entity,  separate  from  the 
natural  persons  who  compose  it,  and  for  whose  benefit  it 
has  been  invented.     *     *     * 

"Now,  so  long  as  a  proper  use  is  made  of  the  fiction, 


932  CORPORATIONS 

that  a  corporation  is  an  entity  apart  from  its  sharehold- 
ers, it  is  harmless,  and,  because  convenient,  should  not  be 
called  in  question;  but  where  it  is  urged  to  an  end  sub- 
versive of  its  policy,  or  such  is  the  issue,  the  fiction  must 
be  ignored,  and  the  question  determined,  whether  the  act 
in  question,  though  done  by  shareholders,  that  is  to  say, 
by  the  persons  united  in  one  body,  was  done  simply  as 
individuals  and  with  respect  to  their  individual  interests 
as  shareholders,  or  was  done  ostensibly  as  such,  but,  as  a 
matter  of  fact,  to  control  the  corporation  and  affect  the 
transaction  of  its  business,  in  the  same  manner  as  if  the 
act  had  been  clothed  with  all  the  formalities  of  a  cor- 
porate act.  This  must  be  so,  because  the  stockholders 
having  a  dual  capacity,  and  capable  of  acting  in  either, 
and  a  possible  interest  to  conceal  their  character  when 
acting  in  their  corporate  capacity,  the  absence  of  the 
formal  evidence  of  the  character  of  the  act,  cannot  pre- 
clude judicial  inquiry  on  the  subject.  If  it  were  other- 
wise then,  in  one  department  of  the  law,  fraud  would 
enjoy  an  immunity  awarded  to  it. in  no  other. 

* '  Therefore,  the  real  question  we  are  now  to  determine 
is,  whether  it  appears  from  the  face  of  the  pleadings, 
giving  effect  to  all  the  denials  of  fact  contained  in  the 
answer,  that  the  execution  of  the  agreement  set  forth  in 
the  petition,  should  be  imputed  to  the  association  of  per- 
sons constituting  The  Standard  Oil  Company  of  Ohio, 
acting  in  their  corporate  capacity. ' ' 

[The  rest  of  the  opinion,  being  very  lengthy,  is  omitted. 
The  Court  decided  that  the  Standard  Oil  Company  was  a 
party  to  the  trust  agreements,  and  entered  an  order 
"  ousting  the  defendant  from  the  right  to  make  the  agree- 
ment set  forth  in  the  petition  and  of,  the  power  to  perform 
the  same."] 

Question  615:  If  the  fiction  of  corporate  entity  is  made  use 
of  in  order  to  perpetrate  a  fraud  on  the  law  will  it  be  ignored  ? 
Why? 

Case  No.  616.  Moore  &  Handley  Hardware  Co.  v. 
Towers  Hardware  Co.,  87  Ala.  206. 


DEFINITION  AND  THEORY  $33 

Facts:  Bill  in  equity,  filed  by  the  Towers  Hardware 
Co.  against  the  Moore  &  Handley  Hardware  Co.  for  an 
injunction  restraining  the  second  named  corporation 
from  selling  "plow  stocks  and  plow  blades' '  in  violation 
of  a  contract  made  between  the  Towers  Hardware  Co. 
and  a  partnership  composed  of  J.  D.  Moore,  B.  F.  Moore 
and  William  A.  Handley,  who,  as  the  bill  alleged  after- 
wards formed  the  defendant  corporation.  The  bill  made 
no  showing  of  fraud.  Defendant  denies  that  it  is  in  any 
way  responsible  for  the  agreements  or  obligations  of  said 
partnership. 

McClellan,  J. :     "•     *     * 

"There  is  a  class  of  contracts,  however,  which  are 
entered  into  between  the  promoters  or  prospectors  of  a' 
contemplated  corporation  and  third  persons,  on  the  faith 
of  the  corporation,  intended  to  inure  to  its  benefit,  and 
which  in  point  of  fact  do  inure  to  its  benefit,  on  which  the 
corporation  will  be  charged,  even  in  the  absence  of  an 
express  promise  to  perform,  or  ratification  on  the  part  of 
the  company  after  it  is  in  esse;  on  'the  familiar  prin- 
ciple, that  one  who  accepts  the  benefit  of  a  contract,  which 
another  volunteers  to  perform  in  his  name,  and  on  his 
behalf,  is  bound  to  take  the  burden  with  the  benefit.' 

"And  in  those  cases  where  'associates  combine  to- 
gether to  create  a  paper  corporation,  to  cover  a  partner- 
ship or  joint  venture,  and  where  the  stockholders  are 
partners  in  intention,'  and  have  resorted  to  the  fiction  of 
separate  corporate  entity  to  free  themselves  from  in- 
dividual obligations  which  had  attached  to  them,  with 
respect  to  the  business  they  propose  to  carry  on,  prior 
to  the  organization  of  the  company,  courts  of  equity, 
when  the  ends  of  justice  require  it,  will  disregard  and 
look  beyond  the  fiction  of  corporate  entity,  and  hold  the 
corporation  to  a  discharge  of  the  liabilities  resting  on  its 
members;  and  this  may  be  done,  although  some  of  the 
shareholders  had  not  originally  incurred  the  obligation 
sought  to  be  enforced,  provided  they  had  notice  of  it 
before  entering  the  corporation,  and  participated  in  the 


934  CORPORATIONS 

effort  to  avoid  it.  Davis  Imp.  Wrought  Iron  W.  W.  Co. 
v.  Davis  Wrought  Iron  W.  Co.,  20  Fed.  Rep.  700;  Beal 
v.  Chase,  31  Mich.  490,  395,  532. 

"The  contract  of  Moore,  Moore  &  Handley,  sought  to 
be  enforced  against  the  Moore  &  Handley  Hardware  Com- 
pany was  not  an  undertaking  between  promoters  of  the 
company  and  third  parties,  nor  made  on  the  faith  of  the 
corporation,  nor  intended  to  inure  to  its  benefit,  nor  did 
it  inure,  in  point  of  fact,  to  the  benefit  of  the  corporation. 
It  is  not  of  that  class  of  contracts  which  courts  enforce 
against  corporations,  on  the  ground  that  they  were  made 
in  the  corporate  name  by  anticipation,  and  that  the  cor- 
poration received  and  accepted  the  benefits  resulting 
from  them. 

"There  is  no  allegation  of  fraud  made  against  the  cor- 
poration, or  its  shareholders,  and  the  implication  of  the 
fraudulent  effect  of  the  corporate  action  complained  of  is 
denied.  It  is  not  shown  that  this  is  a  mere  'paper  cor- 
poration,' to  cover  a  joint  venture,  in  which  the  corpora- 
tors are  partners  in  intention,  and  have  resorted  to  this 
form  for  the  purpose  of  evading  and  avoiding  obligations 
which  they  have  taken  upon  themselves  as  individuals,  or 
for  the  purpose  of  evading  the  promise  relied  on  here. 
If  these  things  had  appeared  in  the  case,  we  should  not 
hesitate  to  hold  the  corporation  answerable  for  the 
individual  obligation.  But,  in  the  absence  of  fraud,  'no 
authorities  have  gone  the  length  of  holding  that  any  con- 
tract made  with  individuals,  exclusively  upon  individual 
credit,  will  become  the  contract  of  any  future  corporation 
that  may  be  formed  for  the  more  convenient  management 
and  use  of  the  benefits  of  it. '  L.  R.  &  Ft.  S.  R.  Co.  Cases, 
supra. 

"If  the  case  of  Beal  v.  Chase,  supra,  goes  beyond 
this  doctrine,  we  can  not  indorse  it.  We  do  not  think  it 
does.  In  that  case,  the  corporation  had  been  formed  for 
the  purpose  of  violating  a  contract  not  to  engage  in  a 
certain  business.  All  the  corporators  were  held  to  have 
participated  in  this  purpose.  The  business  was  to  be 
conducted  by  the  corporation,  in  connection  with  the 


DEFINITION  AND  THEORY  935 

promisor  in  his  individual  capacity.  He  had  an  interest 
in  it,  both  individually  and  as  the  principal  shareholder 
of  the  company ;  and  the  Court  enjoined  the  corporation, 
not  generally,  but  from  carrying  on  the  business  with  or 
for  the  individual  contracting  party.  To  put  the  case  at 
bar  in  line  with  that  case,  it  would  have  to  appear,  not 
only  that  the  corporators  organized  for  the  purpose,  and 
with  the  intention  of  evading  their  contract,  through  the 
separate  entity  of  corporate  existence,  but  also  that  they 
reserved  an  interest  in  the  business  distinct  from  their 
interests  as  stockholders.  None  of  these  facts  are  shown. 
The  effect  of  allowing  the  injunction  in  this  case  to  con- 
tinue, would  necessarily  be  to  hold  all  future  shareholders 
in  the  corporation  to  the  performance  of  a  contract  which 
neither  they  nor  the  corporation  had  ever  entered  into, 
and  of  which  they  may  not  even  have  had  notice.  Such 
a  result  could  only  be  justified  on  the  ground  of  bad  faith 
in  the  creation  of  the  company.  To  thus  hamper  a  bona 
fide  corporation,  would  be  inequitable,  and  have  the  effect 
of  establishing  a  doctrine  fraught  with  much  danger  to 
corporate  rights,  powers  and  property.     *     *     *" 

Question  616:  (1.)  If  A  in  selling  his  business  to  B,  agrees 
with  B  that  he  will  not  compete,  and  then  forms  or  enters  a 
competing  corporation,  is  he  violating  his  contract  ? 

(2.)  What  does  the  Court  say  would  be  necessary  to  put 
this  case  in  line  with  the  case  of  Beal  v.  Chase  1 

Sec.  462.    Kinds  of  Corporations. 

(Note:     Corporations  may  be  classified  as  follows: 
(A.)     Public  corporations,  or  those  which  are  founded  by  the 
government  for  public  purposes. 

(1.)     Municipal  corporations,  as  cities  and  towns. 
(2.)     Quasi-municipal,  as  counties,  boards  of  edu- 
cation, park  boards,  etc. 
(B.)     Private   corporations,   or  those  which  are   owned   by 
private  individuals,  even  though  of  a  public  nature. 
(1.)     Stock  corporations,  or  those  which  are  or- 
ganized for  purposes  of  financial  profit. 


936  CORPORATIONS 

Here  we  place  corporations  of  a  strictly 
private  nature  as  well  as  railroads,  and 
all  public  service  corporations  having 
privately  owned  capital  stock. 
(2.)  Non-stock  corporations,  or  those  not  organ- 
ized for  private  profit. 

(a.)     Religious  corporations, 
(b.)     Charitable  corporations.    Lodges, 
institutes  of  learning,  pleasure 
clubs,  etc. 

Question:  A  partnership  mus^  be  for  financial  profit;  must 
a  corporation  ?    Is  a  railroad  a  private  or  public  corporation  ? 

Sec.  463.    Purposes  for  Which  Corporations  May  Be 

Formed. 

(See  the  classification  in  the  last  section.) 

Case  No.  617.    Re  Co-Operative  Law  Co.,  198  N.  Y.  479. 

Facts:  Proceedings  to  determine  whether  the  Co- 
Operative  Law  Company  was  legally  formed  as  a  cor- 
poration to  engage  in  the  practice  of  law. 

Point  Involved:  Whether  the  practice  of  law  is  a 
legitimate  object  of  incorporation;  generally,  of  the 
objects  for  which  companies  may  be  incorporated. 

Vann,  J.:  "*  *  *  The  practice  of  law  is  not  a 
business  open  to  all,  but  a  personal  right,  limited  to  a 
few  persons  of  good  moral  character,  with  special  qual- 
ifications ascertained  and  certified  after  a  long  course  of 
study,  both  general  and  professional,  and  a  thorough 
examination  by  a  state  board  appointed  for  that  purpose. 

"The  right  to  practice  law  is  in  the  nature  of  a  fran- 
chise from  the  state  conferred  only  for  merit.  It  cannot 
be  assigned  or  inherited,  but  must  be  earned  by  hard 
study  and  good  conduct.  It  is  attested  by  a  certificate  of 
the  Supreme  Court  and  is  protected  by  registration.  No 
one  can  practice  law  unless  he  has  taken  an  oath  of  office 
and  has  become  an  officer  of  the  court,  subject  to  its  dis- 


PURPOSES  OF  INCORPORATION       937 

cipline,  liable  to  punishment  for  contempt  in  violating  his 
duties  as  such  and  to  suspension  or  removal.  It  is  not  a 
lawful  business  except  for  members  of  the  bar  who  have 
complied  with  all  the  conditions  required  by  statute  and 
the  rules  of  the  courts.  As  these  conditions  cannot  be 
performed  by  a  corporation,  it  follows  that  the  practice 
of  law  is  not  a  lawful  business  for  a  corporation  to  engage 
in.  As  it  cannot  practice  law  directly,  it  cannot  indirectly 
by  employing  competent  lawyers  to  practice  for  it,  as  that 
would  be  an  evasion  which  the  law  will  not  tolerate. 
Quando  aliquid  prohibetur  ex  directo,  prohibetur  et  per 
obliquim.     (Co.  Lit.  223.)     *     *     * 

''A  corporation  can  neither  practice  law  nor  hire  law- 
yers to  carry  on  the  business  of  practicing  law  for  it  any 
more  than  it  can  practice  medicine  or  dentistry  by  hiring 
doctors  or  dentists  to  act  for  it.  (People  v.  Woodbury 
Dermatological  Institute,  192  N.  Y.  454;  Hannon  v. 
Siegel-Cooper  Co.,  167  N.  Y.  244,  246.)  The  legislature 
in  authorizing  the  formation  of  corporations  to  carry  on 
'any  lawful  business'  did  not  intend  to  include  the  work 
of  the  learned  professions.  *  *  *  Business  in  its  or- 
dinary sense  was  aimed  at,  not  the  business  or  calling  of 
members  of  the  great  professions,  which  for  time  out  of 
mind  have  been  given  exclusive  rights  and  subjected  to 
peculiar  responsibilities.    *     *     * 

"  These  remarks  are  not  intended  to  cover  title  guar- 
anty companies,  organized  under  the  insurance  law  and 
authorized  to  examine  titles,  guarantee  the  correctness 
of  searches  and  insure  against  loss  by  reason  of  defective 
titles.  (Sec.  170.)  The  searching  of  titles  is  open  to  all 
and  guaranty  companies  may  employ  either  lawyers  or 
laymen  to  transact  their  business.  It  is  not  claimed  that 
they  prosecute  or  defend  the  rights  of  others,  but  only 
their  own,  including  such  as  the  contract  to  indemnify 
gives  them." 

Question  617:  (1.)  Can  a  corporation  be  organized  to  prac- 
tice law?    Why? 

(2.)  Can  a  corporation  be  organized  to  examine  titles  to  real 
estate  and  issue  guarantee  policies,  etc.? 


938  CORPORATIONS 

(3.)  Do  you  think  it  is  practicing  law  for  a  trust  company 
to  hire  lawyers  to  draw  wills  for  patrons? 

Sec.  464.    Generally  of  the  Charter,  as  a  Contract,  etc. 

Case  No.  618.  Dartmouth  College  v.  Woodward,  4 
Wheat.  518. 

Facts:  The  original  charter  of  Dartmouth  College 
named  12  trustees  ("the  whole  number  of  said  trustees 
consisting,  and  hereafter  forever  to  consist,  of  twelve  and 
no  more")  to  constitute  a  body  corporate  to  be  known 
by  the  name  of  The  Trustees  of  Dartmouth  College.  In 
1816,  the  state  of  New  Hampshire  (where  said  college 
was  situated)  passed  a  law  to  increase  the  number  of 
trustees  to  21,  and  to  establish  a  board  of  25  overseers, 
and  to  make  other  changes  of  a  material  nature  in  the 
management  of  said  college.  The  college  or  its  trustees 
did  not  assent  to  these  laws. 

Point  Involved:  Whether  the  charter  is  a  contract 
protected  by  the  provision  of  the  federal  constitution  that 
no  state  shall  pass  any  law  impairing  the  obligation  of 
contracts. 

Chief  Justice  Marshall:  "*  *  *  A  corporation 
is  an  artificial  being,  invisible,  intangible  and  existing 
only  in  contemplation  of  law.  Being  the  mere  creature 
of  law,  it  possesses  only  those  properties  which  the  char- 
ter of  its  creation  confers  upon  it,  either  expressly  or  as 
essential  to  its  very  existence.  These  are  such  as  are 
supposed  best  calculated  to  effect  the  object  for  which 
it  was  created.  Among  the  most  important  are  immor- 
tality, and  if  the  expression  may  be  allowed,  individu- 
ality; properties,  by  which  a  perpetual  succession  of 
many  persons  are  considered  as  the  same  and  may  act 
as  a  single  individual.  They  enable  a  corporation  to 
manage  its  own  affairs  and  to  hold  property  without  the 
perplexing  intricacies,  the  hazardous  and  endless  neces- 
sity, of  perpetual  conveyances  for  the  purpose  of  trans- 
mitting it  from  hand  to  hand.  It  is  chiefly  for  the  pur- 
pose of  clothing  bodies  of  men,  in  succession,  with  these 


THE  CHARTER  A  CONTRACT        939 

qualities  and  capacities,  that  corporations  were  invented, 
and  are  in  use.  By  these  means  a  perpetual  succession 
of  individuals  are  capable  of  acting  for  the  promotion  of 
the  particular  object,  like  one  immortal  being.  *  *  * 
[Here  the  Court,  in  a  lengthy  opinion,  considers  the 
objects  of  corporations,  their  public  or  private  nature, 
the  purposes  of  the  present  charter,  etc.] 

"The  opinion  of  the  Court,  after  mature  deliberation 
is,  that  this  is  a  contract,  the  obligation  of  which  can- 
not be  impaired,  without  violating  the  Constitution  of 
the  United  States.     *     *     * 

' '  2.  We  next  proceed  to  the  inquiry  whether  its  obli- 
gation has  been  impaired  by  those  acts  of  the  legislature 
of  New  Hampshire.     *     *     *" 

[The  Court  concludes  that  the  amendatory  acts  passed 
by  the  New  Hampshire  legislature  impaired  the  obliga- 
tions of  the  charter,  and  that  such  acts  are  therefore 
unconstitutional  and  void.] 

Question  618:  (1.)  "What  prevented  the  legislature  from 
having  the  power  to  pass  the  law  in  question? 

(2.)     How  did  Chief  Justice  Marshall  define  a  corporation? 

Case  No.  619.  Avondale  Land  Co.  v.  Shook,  17Q 
Ala.  379. 

Facts:  Suit  by  minority  stockholders  to  restrain  the 
majority  stockholders  from  amending  the  charter  of  the 
corporation.  The  exact  character  of  the  changes  con- 
templated is  not  indicated  in  the  opinion,  except  that 
they  are  of  a  private  nature  and  evidently  go  to  change 
the  objects  of  the  corporation.  The  constitution  of  Ala- 
bama in  force  when  the  original  charter  was  secured 
provided  that  all  charters  were  subject  to  the  state's 
right  to  alter,  amend  or  repeal,  and  the  present  change 
is  sought  under  a  law  passed  under  that  provision. 

Point  Involved:  To  what  extent  a  charter  may  be 
changed  by  the  majority  stockholders  against  the  dissent 
of  a  minority  stockholder,  where  the  state  reserves  the 
right  to  alter,  revoke  or  amend  any  charter  and  a  law  is 


940  CORPORATIONS 

enacted,  giving  the  majority  stockholders  a  right  to  alter 
the  charter. 

Evans,  J.:     "*     *     * 

"Since  the  decision  of  the  case  of  Trustees  of  Dart- 
mouth College  v.  Woodward,  4  Wheat,  518,  4  L.  Ed.  629, 
it  has  been  fully  recognized  in  this  country  that  the  char- 
ter of  a  private  corporation  is  a  contract  within  the 
meaning  of  and  under  the  protection  of  that  clause  in 
the  Constitution  of  the  United  States  which  provides  that 
'no  state  shall  *  *  *  pass  any  *  *  *  law  im- 
pairing the  obligations  of  contracts. ' — Section  10,  art.  1, 
Const.  U.  S.  But  'the  charter  of  a  corporation  having 
a  capital  stock  is  a  contract  between  three  parties,  and 
forms  the  basis  of  three  distinct  contracts.  The  charter 
is  a  contract  between  the  state  and  the  corporation ;  sec- 
ond, it  is  a  contract  between  the  corporation  and  the 
stockholders;  third,  it  is  a  contract  between  the  stock- 
holders and  the  state.' — Cook  on  Corporations  (6th  Ed.) 
Sec.  492.  The  charter  is  under  the  protection  of  said 
clause  of  the  federal  Constitution  in  all  three  of  its  as- 
pects as  a  contract. 

* '  Such  being  the  case,  many,  if  not  all,  of  the  different 
states  of  the  Union  have  protected  themselves,  as  far  as 
they  thought  necessary  from  the  effects  of  this  provision 
in  the  federal  Constitution  by  reserving  in  their  consti- 
tutions certain  powers  of  altering,  revoking,  and  amend- 
ing the  charters  of  private  corporations  thereafter  to 
be  organized  under  the  general  laws  of  such  states  or 
chartered  by  special  act  of  the  legislatures  of  such 
states,  so  that  such  reserved  power  would  enter  into  and 
form  a  part  of  the  charter  contract.  This  was  done  in 
the  constitution  of  1875  of  this  state.  The  power  to 
amend,  alter,  or  revoke  the  charter  thus  being  made  a 
part  of  the  charter  contract,  the  exercise  of  this  power 
by  the  state  in  the  manner  and  to  the  extent  contem- 
plated could  not  be  considered  as  in  violation  of  said 
Section  10  of  Article  1  of  the  Constitution  of  the  United 
States.    Those  who  invest  their  money  in  such  a  corpora- 


THE  CHARTER  A  CONTRACT        941 

tion  do  it  with  full  knowledge  of  the  power  which  the 
state  has  reserved  to  alter,  revoke,  or  amend  its  charter, 
and  contract  with  reference  thereto.  It  thus  becomes 
part  of  the  contract.  *  *  *  We  quote  with  approval 
from  Cook  on  Corporations  (6th  Ed.)  Sec.  501,  the  fol- 
lowing: 'The  extent  of  the  power  of  the  legislature  to 
amend  a  charter,  where  it  has  reserved  that  power,  is  not 
yet  fully  settled,  and  is  full  of  difficulties.  There  is  a 
strong  tendency  in  the  decisions,  and  a  tendency  which  is 
deserving  of  the  highest  commendation,  to  limit  the  power 
of  the  legislature  to  amend  a  charter  under  this  reserved 
power.  It  should  be  restricted  to  those  amendments  only 
in  which  the  state  has  a  public  interest.  Any  attempt  to 
use  this  power  of  amendment  for  the  purpose  of  author- 
izing a  majority  of  the  stockholders  to  force  upon  the 
minority  a  material  change  in  the  enterprise  is  contrary 
to  law  and  the  spirit  of  justice.  Under  such  reserved 
power  the  Legislature  has  only  that  right  to  amend  the 
charter  which  it  would  have  had  in  case  the  Dartmouth 
College  Case  had  decided  that  the  federal  Constitution 
did  not  apply  to  corporate  charters.  In  fact,  the  his- 
torical origin  of  this  reservation  of  the  right  to  amend 
was  due  to  the  effort  of  the  various  states  of  the  Union 
to  escape  from  the  decisions  in  the  Dartmouth  College 
Case.  By  this  reserved  right  the  restraint  of  the  federal 
Constitution  is  done  away  with.  But  the  power  to  make 
a  new  contract  for  the  stockholders  is  not  thereby  given 
to  the  Legislature.  The  Legislature  may  repeal  the  char- 
ter, but  cannot  force  a  stockholder  into  a  contract  against 
his  will. '  In  the  above  quotation  the  author  was  speak- 
ing of  such  general  reservation  of  power  as  that  con- 
tained in  the  Constitution  of  Alabama  of  1875.  We  hold 
that  the  amendment  attempted  in  this  case  is  a  material 
and  fundamental  change  from  the  original  plan,  bringing 
in  new  fields  of  operation  and  involving  greater  hazard. 
"It  follows  from  the  foregoing  that  the  power  of 
amendment  in  the  Constitution  of  1875  does  not  give  the 
Legislature  this  power  to  amend  the  charter  of  the  Avon- 
dale  Land  Company  in  the  manner  and  to  the  extent 


942  CORPORATIONS 

attempted  by  the  majority  stockholders,  and  therefore 
no  such  power  could  be  given  by  the  Legislature  to  a 
majority  of  the  stockholders  of  said  corporation;  that 
Section  3462  of  the  Code  of  1907  can  confer  no  greater 
authority  to  amend  said  charter  than  was  reserved  by 
the  Constitution  of  1875.  Hence  said  Section  3462  can- 
not confer  the  authority. 

"We  are  therefore  of  opinion  that  it  does  appear  from 
the  averments  of  the  bill  of  complaint  that  the  attempt 
of  respondents  to  amend  said  charter  (as  set  forth  in 
said  bill  of  complaint)  was  beyond  the  power  of  a  ma- 
jority of  the  stockholders  of  said  corporation  when 
objected  to  by  any  stockholder. ' ' 

Question  619:  (1.)  After  the  decision  in  the  Dartmouth 
College  case,  how  did  the  states  accomplish  the  power  to  change 
charters  thereafter  to  be  issued  ? 

(2.)  What  sort  of  changes  (as  stated  by  the  Court  in  this 
case)  can  be  made  as  against  the  dissent  of  minority  stockholders, 
under  the  state's  reserved  power  to  alter  and  repeal,  and  under 
the  statutes  giving  the  majority  members  the  right  to  secure 
changes  of  the  charter  ? 

(Note:  With  reference  to  the  right  to  change  the  charter 
against  dissenting  shareholders,  we  must  keep  distinct  (a)  the 
right  of  the  state  on  its  own  initiative  to  pass  laws  amending  or 
abrogating  charters,  and  (b)  the  right  of  majority  shareholders 
to  apply  to  the  state  for  and  to  receive  changes  in  the  charter. 
The  general  law  by  which  the  state  reserves  its  right  to  amend 
charters  issued  after  the  enactment  of  such  law,  gives  it  the 
right  to  pass  laws  requiring  annual  reports,  to  admit  stock- 
holders to  inspect  books,  to  keep  certain  sorts  of  books,  to  have 
certain  numbers  or  qualifications  of  directors,  etc.  The  law  by 
which  a  certain  majority  may  effect  changes  in  the  charter, 
gives  them  the  right  to  change  the  name,  the  objects,  the  number 
of  directors,  etc.  The  extent  to  which  the  majority  can  bring 
about  such  changes  is  not  entirely  clear  under  the  authorities. 
It  would  seem,  for  instance,  unjust  to  allow  the  majority  against 
dissent  of  minority  stockholders  to  change  the  object  of  a  cor- 
poration from  that  of  manufacturing  automobiles,  to  that  of 
selling  groceries,  whether  the  point  is  raised  as  to  whether  the 
dissenting  stockholder  simply  cannot  object,  but  may  withdraw 


CORPORATIONS  DE  FACTO  943 

from  his  share  ownership,  or  whether  he  can  be  compelled  to 
accept  the  change.  There  are  decisions  (as  the  one  above) 
which  limit  the  right  of  alteration  very  sharply  to  changes  of 
an  immaterial  nature  or  to  changes  of  public  importance.) 

Sec.  465.    Corporations  de  Facto. 

Case  No.  620.    Harrill  v.  Davis,  168  Fed.  187. 
(Set  out  as  Case  No.  565,  supra.) 

Question  620:  In  this  case  why  was  there  no  corporation 
de  facto  ! 

Case  No.  621.    Imperial  Building  Co.  v.  Board  of 

Trade,  238 HI.  100. 

Facts:  The  law  of  Illinois  forbade  incorporation  for 
dealing  in  real  estate.  The  Imperial  Building  Company 
was  organized  as  a  real  estate  company  and  compliance 
with  the  Illinois  general  corporation  law  was  attempted 
and  the  Secretary  of  State,  misinterpreting  the  law,  is- 
sued a  certificate  of  incorporation  to  such  company  (said 
certificate  being  void  in  law).  The  company  then  in 
good  faith  proceeded  to  carry  on  business  as  a  corpora- 
tion. It  rented  certain  of  its  premises  to  the  Chicago 
Open  Board  of  Trade.  Suit  was  brought  against  such 
tenant  for  rent  in  arrear.  Defendant  pleaded  ilnul  tiel 
corporation "  (no  such  corporation).  The  Imperial 
Building  Company  contends  that  it  is  at  least  a  corpora- 
tion de  facto,  and  as  such  its  existence  as  a  corporation 
cannot  be  questioned  by  any  one  except  the  state. 

Mr.  Justice  Farmer:  "*  *  *  It  is  next  contended 
that  if  appellant's  charter  be  held  void  it  is  not  subject 
to  be  attacked  collaterally  and  that  appellee  having  en- 
tered into  a  contract  with  appellant  for  the  leasing  of 
the  premises  is  now  estopped  to  deny  its  corporate  exist- 
ence. The  general  rule  is,  that  where  there  is  an  attempt 
in  good  faith  to  organize  under  a  law  authorizing  the 
incorporation,  and  corporate  functions  are  exercised, 
this  makes  the  organization  a  corporation  de  facto,  and 


944  CORPORATIONS 

its  legality  cannot  be  questioned  collaterally  or  by  one 
who  deals  with  it  as  a  corporation.  In  such  cases  the 
introduction  in  evidence  of  the  charter  and  proof  of  user, 
and  that  the  party  seeking  to  deny  the  legality  of  the 
corporation  dealt  with  it  as  a  corporation,  sufficiently 
proves  it  a  corporation  de  facto,  and  whether  there  may 
have  been  some  irregularities  in  perfecting  the  incor- 
poration will  not  be  inquired  into.  The  legality  of  such 
incorporation  can  only  be  attacked  by  the  state  in  a  direct 
proceeding.     *     *     * 

"The  appellee  concedes  that  this  is  the  rule  as  to 
de  facto  corporations  but  contends  that  there  can  only 
be  a  de  facto  corporation  where  there  is  a  law  under 
which  the  corporation  might  legally  be  organized,  but 
that  if  there  is  no  law  authorizing  the  organization  of 
such  corporation  its  non-existence  or  invalidity  can  be 
set  up  collaterally.  Cook  on  Corporations  (Sec.  234) 
thus  defines  a  corporation  de  facto :  l  The  corporation  is 
a  de  facto  corporation  where  there  is  a  law  authorizing 
such  a  corporation  and  where  the  company  has  made 
an  effort  to  organize  under  the  law  and  is  transacting 
business  in  a  corporate  name.'  In  American  Trust  Co. 
v.  Minnesota  and  Northwestern  Eailroad  Co.,  157  111.  641, 
it  was  contended  on  behalf  of  certain  corporations  that 
had  attempted  a  consolidation  without  any  law  author- 
izing such  consolidation,  that  the  validity  of  the  con- 
solidation, when  vnot  questioned  by  the  state,  must  be 
sustained  as  against  third  persons  and  wrongdoers.  The 
Court  held  the  rule  of  law  was  not  as  broad  as  contended 
for,  and  said  (p.  652) :  'Where  there  is  a  de  facto  cor- 
poration, its  corporate  existence,  except  in  a  few  excep- 
tional cases,  cannot  be  questioned  collaterally,  and  can 
only  be  inquired  into  by  the  state  and  in  a  direct  pro- 
ceeding.' (Hudson  v.  Green  Hill  Seminary,  113  111.  618.) 
But  in  order  that  there  should  be  a  de  facto  corporation, 
two  things  are  essential:  First,  there  must  be  a  law 
under  which  the  corporation  might  lawfully  be  created; 
and  second,  user.  Where  the  law  authorizes  a  corpora- 
tion, and  there  is  an  attempt,  in  good  faith,  to  organize, 


PROMOTERS  945 

and  corporate  functions  are  thereupon  exercised,  there 
is  a  corporation  de  facto,  the  legal  existence  of  which 
cannot  ordinarily  be  questioned  collaterally.  *  *  *" 
[The  Court  held  that  the  plea  was  good  and  that  the 
rent  could  not  be  recovered  by  the  corporation  suing  as 
such,  as  there  was  not  even  a  corporation  de  facto.] 

Question  621:  (1.)  What  three  things  are  essential  to  the 
existence  of  a  corporation  de  facto? 

(2.)     What  is  a  corporation  de  jure? 

(3.)  If  there  is  a  corporation  de  facto,  who  can  question  its 
existence  ? 

(4.)  Where  the  defense  is  that  the  corporation  is  defectively 
organized,  what  practical  results  follow  in  holding  that  it  has 
sufficiently  complied  with  the  law  to  constitute  a  corporation 
de  facto? 

(5.)  What  was  lacking  in  the  above  case  which  made  the 
defense  good  that  there  was  not  a  corporation  de  facto? 

(6.)  Suppose  the  Imperial  Building  Company  had  been  the 
tenant  and  its  members  had  been  sued  personally  for  the  rent, 
do  you  think  they  would  have  been  liable?  Could  they  have 
asserted  that  the  lease  was  that  of  the  corporation  and  not  their 
own? 

(7.)  A  corporation  is  chartered  to  carry  on  a  safety  deposit 
vault  business,  a  business  for  which  incorporation  may  be  had 
under  the  law.  It  erects  a  16-story  building  and  puts  in  a  small 
vault  in  the  basement,  letting  out  the  rest  of  the  building  to 
tenants  for  general  office  purposes.  A  tenant  is  sued  for  the 
rent.  Would  you  distinguish  between  such  a  case  and  the  case 
above  ?    Why  ? 

Sec.  466.    Promoters. 

Case  No.  622.  Yeiser  and  others  v.  U.  S.  Board  & 
Paper  Co.,  107  Fed.  Eep.  340. 

Facts:  The  corporation  sues  Yeiser  and  others  to 
annul  certain  certificates  of  stock  alleged  to  have  been 
unlawfully  obtained  by  certain  parties  (Yeiser  being  the 
administrator  of  one  of  them,  now  deceased).  It  ap- 
peared that  these  parties  conceived  the  project  of  organ- 
izing a  corporation,  obtaining  subscriptions  thereto  and 


946  CORPORATIONS 

with  the  proceeds  to  purchase  a  paper  mill  plant  for  the 
company  at  an  advanced  price  on  an  option  secured  by 
them  on  the  property,  thereby  realizing  a  considerable 
profit.  They  secured  this  option  at  the  sum  of  $75,000. 
They  then  formed  a  company  with  a  capital  stock  of 
$100,000,  subscribing  for  $25,000  of  the  stock,  but  not 
paying  therefor.  Being  all  the  subscribers  of  the  stock, 
they  elected  each  other  directors  constituting  the  whole 
board.  Bell,  one  of  their  number,  was  authorized  to 
secure  additional  subscriptions.  They  then  voted  that 
the  corporation  buy  the  property  for  $100,000.  A  pros- 
pectus was  then  issued  and  subscriptions  of  $45,000  se- 
cured. By  manipulating  matters  the  defendants  secured 
their  $25,000  of  stock,  for  nothing,  and  it  is  the  validity 
of  this  stock  that  is  questioned  as  having  been  secured 
through  fraud  on  the  other  stockholders. 

Seveeens,  C.  J. :  "In  this  country  the  courts  have 
accepted  the  essential  principle  laid  down  in  the  English 
cases,  and  hold,  with  scarcely  any  variation  to  the  doc- 
trine, that  the  promoter  of  a  company  stands  in  the  re- 
lation of  a  trustee  to  it,  and  those  who  become  subscribers 
to  its  stock,  so  long  as  he  retains  the  power  of  control 
over  it.  There  is  some  difference  of  opinion,  as  there 
is  in  the  English  cases,  in  regard  to  the  time  when  he 
becomes  such  promoter,  within  the  meaning  and  opera- 
tion of  the  rule.  Some  courts  are  of  opinion  that  he  is 
chargeable  with  the  duties  of  a  trust  when  he  enters  into 
the  execution  of  the  scheme  which  is  intended  to  result 
in  the  transfer  of  the  property  to  a  company  to  be  or- 
ganized and  controlled  by  him.  All,  however,  agree  that 
he  comes  within  the  rule  when  he  begins  to  organize 
the  company,  and  that  from  that  time  he  is  bound  to  deal 
openly  and  fairly,  and  in  such  a  way  as  that  those  having 
independent  charge  of  the  company,  as  well  as  those 
who  are  induced  to  become  subscribers  to  its  stock,  may 
be  fully  advised  of  the  relation  he  bears  to  the  property 
which  he  purposes  to  sell,  in  like  manner  as  one  who 
assumes  to  act  as  the  agent  of  another  in  the  purchase 
of  property.     *     *     * 


PROMOTERS  947 

"The  company,  as  well  as  the  stockholders,  are  en- 
titled to  the  independent  judgment  of  the  trustee  in  re- 
gard to  the  value  of  the  property  to  be  purchased,  and 
the  price  to  be  paid,  as  well  as  its  fitness  for  the  intended 
use.  It  is  said  that  the  property  is  Worth  what  the  com- 
pany paid  for  it,  and  is  adapted  to  the  company's  re- 
quirements. It  happens  so.  But  this  in  no  manner 
affects  the  operation  of  the  rule.     *     *     * 

"The  substance  of  the  whole  matter  is  that  through 
their  breach  of  trust,  they  were  enabled  to  get  $25,000 
of  the  company's  stock  without  paying  for  it.  It  seems 
to  us  that  a  decree  annulling  their  title  to  it  is  an  appro- 
priate remedy.  The  decree  of  the  circuit  court  is 
affirmed. ' ' 

Question  622:  (1.)  State  the  facts  in  this  ease,  the  question 
presented  and  the  Court's  decision. 

(2. )  Why  was  it  immaterial  that  the  company  got  its  money 's 
worth  ? 

Case  No.  623.  Lomita  L.  &  W.  Co.  v.  Robinson,  154 
Cal.  36. 

Facts:     See  the  opinion. 

Point  Involved:  The  right  of  promoters  to  make  a 
secret  profit  on  the  property  sold  by  them  to  the  cor- 
poration. 

Angellotti,  J.:    "*     *     * 

"As  to  defendants  Freeman  and  Cline,  the  case,  under 
the  authorities,  is,  of  course,  a  clear  one  so  far  as  the 
$6,500  profit  made  by  Freeman  and  shared  by  him  in 
part  with  the  others  is  concerned.  They  were  essen- 
tially promoters  of  the  corporation  formed  for  the 
avowed  purpose  of  purchasing  this  property  from  one 
other  than  themselves,  and  they  misrepresented  to  those 
whom  they  induced  to  join  in  the  enterprise,  and  who 
became  with  them  subscribers  to  the  stock  of  the  pro- 
posed corporation,  the  amount  the  corporation  would  be 
required  to  pay  in  order  to  obtain  the  property,  for  the 


948  CORPORATIONS 

purpose  of  making  $6,500  secret  profit  from  the  sub- 
scribers in  the  transaction,  and  this  secret  profit  was  in 
fact  made.  The  findings  show  that  their  plan  from  the 
beginning  was  to  form  a  corporation  to  purchase  this 
property,  and  that  they  practically  procured  its  founda- 
tion. As  promoters  of  the  corporation,  they  occupied  a 
fiduciary  relation  to  their  co-subscribers,  and  were  bound 
to  truthfully  declare  to  their  associates  any  personal 
interest  that  they  had  in  the  matter  of  the  purchase. 
Without  such  disclosure  they  could  not  legally  profit  at 
the  expense  of  their  associates.  If  they  were  guilty  of 
any  misrepresentation  in  the  facts  or  suppression  of 
truth  in  relation  to  their  personal  interest  in  the  pro- 
posed purchase,  the  corporation  is  entitled  to  set  aside 
the  transaction,  or  recover  compensation  for  any  loss 
which  it  has  suffered.     *     *     *" 

Question  623:  How  was  the  second  profit  made  in  this  case? 
Were  the  promoters  held  liable  ? 

Case  No.  624.  Cushion  Heel  Shoe  Co.  v.  Hartt,  50 
Lawyers'  Reports  Anno.,  new  series,  979  (Ind.). 

Point  Involved:  The  liability  of  a  corporation  for  the 
contracts  of  its  promoters. 

Spencer,  J.,  delivered  the  opinion  of  the  court : 
"It  appears  from  the  record  in  this  case  that  in  April, 
1909,  appellee,  who  was  experienced  in  the  manufacture 
of  shoes,  inserted  in  a  shoe  journal  an  advertisement 
for  a  shoe  factory  to  locate  in  the  city  of  Ft.  Wayne. 
Among  the  answers  which  he  received  thereto,  was  one 
from  a  man  named  Johnson,  who  was  the  patentee  of  a 
certain  cushion  heel  shoe.  Johnson  came  to  Ft.  Wayne, 
and  with  him  appellee  went  to  the  president  of  the  Com- 
mercial Club,  whom  they  interested  in  the  proposition  of 
starting  appellant  company.  Subscription  lists  were  pre- 
pared and  appellee  started  out  to  get  subscribers  to  the 
undertaking.  He  testified  that  Johnson  then  promised 
him  the  position  of  superintendent  when  the  factory 


PROMOTERS  949 

should  be  established,  and  also  promised  that  he  (appel- 
lee) should  be  paid  for  his  time  and  money  spent  in 
securing  the  stock  subscriptions ;  that  after  the  company 
was  organized,  appellee  talked  with  several  of  the  direc- 
tors and  officers  of  appellant  company  and  told  them 
that  he  expected  to  be  paid  for  his  services ;  that  one  of 
the  directors  said  to  appellee:  'I  believe  you  should  be 
compensated.  I  have  told  the  people,  the  directors,  to 
settle  with  you.'  No  testimony  was  introduced  to  show 
that  the  board  of  directors  ever  acted  on  appellee's  claim, 
but  it  is  his  contention  that,  by  accepting  the  results  of 
his  sendees  and  receiving  the  benefits  thereof,  appellant 
is  now  bound  on  an  implied  contract  to  pay  for  such 
service. 

"It  is  certain  that,  under  ordinary  circumstances,  a 
corporation  cannot  be  successfully  sued  on  a  contract 
made  for  its  benefit  by  its  projectors  before  its  incor- 
poration. Contracts  of  this  character,  however,  are  not 
void,  but  voidable;  and  it  is  well  settled  in  nearly  all 
jurisdictions  that,  in  so  far  as  they  are  not  ultra  vires, 
such  contracts  may  become  binding  on  the  corporation 
if  ratified  by  it,  either  expressly  or  by  implication,  after 
its  organization.  Smith  v.  Parker,  148  Ind.  127-133,  45 
N.  E.  770;  Bruner  v.  Brown,  139  Ind.  600-602,  38  N.  E. 
318;  Davis  &  R.  Bldg.  &  Mfg.  Co.  v.  Hillsboro  Creamery 
Co.,  10  Ind.  App.  42,  37  N.  E.  549;  Tuttle  v.  Tuttle,  101 
Me.  287-292,  64  Atl.  496,  8  Ann.  Cas.  260;  Battelle  v. 
Northwestern  Cement  &  Concrete  Pav.  Co.,  37  Minn.  89, 
33  N.  W.  327. 

"But  the  rule  that  a  corporation  may  be  bound,  like 
any  individual,  by  an  implied  contract,  is  limited  in  its 
application  to  contracts  in  which  the  promoters  of  such 
corporation  are  interested. 

"We  are  aware  that  cases  may  be  found  which  seem 
to  sustain  appellee's  position,  but,  as  is  suggested  in 
10  Cyc.  at  page  265,  'it  is  difficult  to  understand  how 
the  corporation  could  be  estopped  by  accepting  benefits 
which  it  had  no  power  to  reject,  without  uncreating 
itself. '    We  believe  that  the  better  reason  and  the  weight 


950  CORPORATIONS 

of  authority  support  the  holding  that,  in  the  absence  of 
statutory  or  charter  provisions,  a  corporation  will  be 
held  liable  for  services  rendered  by  its  promoters  before 
incorporating  only  when,  by  express  action  taken  after 
it  has  become  a  legal  entity,  it  recognizes  or  affirms  such 
claim.  The  evidence  before  us  does  not  indicate  such  an 
affirmance.  In  Tift  v.  Quaker  City  Nat.  Bank,  141  Pa. 
550,  21  Atl.  660,  as  in  this  case,  it  was  shown  that  the 
plaintiff's  claim  was  brought  to  the  attention  of  the  board 
of  directors  after  the  defendant's  incorporation,  but  that 
no  action  was  taken  thereon.  The  Court  held  that  'mere 
silence  of  the  board  of  directors,  or  failure  to  object 
when  the  claim  was  mentioned,  is  not  such  an  act  of 
ratification  as  will  bind  the  bank. '  '  ■ 

Question  624:  (1.)  Is  a  promoter  the  agent  of  the  corpora- 
tion? 

(2.)  When  will  the  corporation  be  liable  for  the  acts  of  a 
promoter  ? 

(Note :  The  rule  is  everywhere  settled  that  corporations  are 
not  liable  for  the  contracts  of  its  promoters  merely  because 
made  by  the  promoter.  A  promoter  is  not  an  agent  for  the  future 
corporation.  The  corporation  may  become  liable  by  adopting 
the  act  of  the  promoter.  Such  adoption  may  be  either  express, 
or  it  may  be  implied  where  the  corporation  accepts  property 
which  it  has  full  liberty  to  decline  (10  Cyc.  263).  For  mere 
services,  however,  the  better  opinion  seems  to  be  that  it  will 
not  be  liable  merely  because  it  receives  the  benefit,  as  it  cannot 
well  decline  it.  The  promoters  are  themselves  liable  on  their 
own  contracts.  The  doctrine  "respondent  superior"  does  not 
apply,  as  the  corporation,  not  being  in  existence,  cannot  be 
the  principal.) 


PART    XXVI 

CORPORATE  CAPACITY  AND  POWERS 

Chapter  Ninety.  General  Corporate  Capacities. 

Chapter  Ninety-one.       Powers  of  Contractual  Nature. 
Chapter  Ninety-two.      Effect  of  Acts  Ultra  Vires, 

CHAPTER    NINETY 
GENERAL  CORPORATE  CAPACITIES 

§  467.  Powers  inherent  in  corporate       §  468.  Power  to  commit  torts, 
existence.  §  469.  Power  to  commit  crimes. 

Sec.  467.    Powers  Inherent  in  Corporate  Existence. 

'  Case  No.  625.     Thomas  v.  Dakin,  22  Wend.  (N.  Y.)  9. 

(Set  out  as  Case  No.  609,  supra.) 

Question  625:  Specify  the  powers  inherent  in  corporate  exist- 
ence as  given  in  this  case. 

Sec.  468.    Power  to  Commit  Torts. 

Case  No.  626.  Pennsylvania  Iron  Wks.  Co.  v.  Henry 
Voght  Machine  Co.,  29  Ky.  L.  Eep.  861,  8  L.  R.  A.  new 
series  1023. 

Facts:  The  defendant  is  a  Pennsylvania  corporation 
and  the  plaintiff  a  Kentucky  corporation,  and  are  rivals 
in  the  manufacture  of  ice  machines :  The  Pennsylvania 
company  opened  an  office  in  Louisville,  Ky.,  and  placed 

951 


952  CORPORATIONS 

it  in  charge  of  William  Wilson.  Both  companies  became 
bidders  to  put  in  an  ice  machine  desired  by  the  Northern 
Lake  Ice  Co.  of  Louisville.  The  Kentucky  corporation 
was  successful  and  when  Wilson  learned  of  this  fact,  he 
wrote  a  libelous  letter  to  the  Northern  Lake  Ice  Co. 
This  letter  was  written  on  the  company's  letter  head  and 
signed  "Pennsylvania  Iron  Works,  Wm.  Wilson,  Man- 
ager, Southern  Office.,,  The  Kentucky  company  sues 
the  Pennsylvania  company  for  damages  on  account  of 
libel.  Defendant  urges  that  this  was  a  wrongful  act  of 
an  employee  for  whom  it  is  not  responsible. 

Point  Involved:  The  power  of  a  corporation  to  com- 
mit a  tort;  whether  answerable  in  libel  for  the  libelous 
statements  of  an  agent  made  by  him  as  a  part  of  his  act 
in  representing  the  company. 

Carroll,  C:    "•     *     * 

"A  corporation  is  liable  in  damages  for  the  publica- 
tion of  a  libel,  as  it  is  for  other  torts.  To  establish  its 
liability,  the  publication  must  be  shown  to  have  been 
ratified  by  it,  or  to  have  been  made  by  one  of  its  servants 
or  agents  in*  the  scope  of  his  employment  and  in  the 
course  of  the  business  in  which  he  was  employed.  And 
a  corporation  may  sue  for  libel  upon  it,  as  distinct  from 
the  libel  upon  the  individual  members.  *  *  *  The 
evidence  shows  very  clearly  that  Wilson  was  the  duly 
authorized  agent  of  appellant  and  in  charge  of  the  south- 
ern office  at  the  time  he  wrote  the  letters.  That  they 
were  written  in  the  course  of  his  business  for  appellant, 
and  were  within  the  scope  of  his  employment,  is  made 
plain  by  the  fact  that  they  were  written  for  the  purpose 
of  obtaining  for  the  appellant  the  contract  to  build  the 
ice  machine  for  the  Northern  Lake  Ice  Company,  and  to 
take  this  business  away  from  the  appellee.  This  being 
the  sole  purpose  of  the  letters,  and,  Wilson  being  at  the 
time  the  general  agent  of  the  appellant,  it  cannot  be 
doubted  that  in  writing  it  he  was  acting  within  the  scope 
of  his  employment,  and  therefore  appellant  is  liable  for 
his  acts.    It  may  be  true  that  appellant  did  not  authorize 


POWER  TO  COMMIT  TORTS  953 

Wilson  to  insert  in  these  letters  the  libelous  statements 
they  contained,  and  it  may  be  conceded  that  they  were 
written  without  its  knowledge  or  consent,  but  this  will 
not  exonerate  it  from  liability  for  the  wrong  perpetrated 
by  him  in  an  effort  to  obtain  business  for  it.  If  the 
appellant  is  not  responsible  for  this  conduct  of  Wilson, 
it  would  be  difficult  to  find  a  case  in  which  a  corporation 
could  be  held  liable  for  the  acts  of  its  agents  in  the  pub- 
lication of  libelous  matter.  Corporations  transact  all 
their  business  through  agents;  and  when  the  agent  is 
acting  in  the  course  of  his  business  and  within  the  scope 
of  his  employment,  the  corporation  will  be  held  account- 
able for  his  acts  and  doings  in  the  same  degree  as  an 
individual  will  be  held  answerable  for  torts  perpetrated 
by  him  in  his  individual  capacity.  Where  an  action  will 
lie  against  an  individual  for  a  tort,  it  will  lie  against  a 
corporation,  if  the  tort  was  committed  by  its  agent  or 
servant  in  the  scope  of  his  employment. ' ' 

Question  626:  (1.)  What  was  the  tort  of  the  agent  for 
which  the  corporation  was  sought  to  be  held  in  this  case  ? 

Case  No.  627.     Stewart  v.  Wright,  147  Fed.  321. 

Hook,  Ciecuit  Judge:     "•     *     * 

"While  a  corporation  has  no  brain  to  contrive,  no 
tongue  to  deceive,  and  no  hands  with  which  to  strike,  it 
employs  in  its  service  the  brains  and  tongues  and  hands 
of  others;  and  as  it  can  only  operate  through  natural 
persons,  there  is,  as  there  logically  should  be,  a  correla- 
tive responsibility  for  the  acts  of  those  persons  in  the 
course  of  the  corporate  business  and  of  their  employ- 
ment, and  for  any  malicious  and  evil  intent  with  which 
such  acts  are  attended. 

"A  few  of  the  multitude  of  authorities  will  be  sufficient 
to  illustrate  the  wide  range  of  the  modern  doctrine.  Cor- 
porations have  been  held  liable  in  these  cases  by  attribut- 
ing to  them  the  conduct  of  their  officers  and  agents: 
Assault  and  battery  with  a  deadly  weapon  by  a  railroad 


954  CORPORATIONS 

company  (Railway  v.  Harris,  122  U.  S.  597,  7  Sup.  Ct. 
1286,  30  L.  Ed.  1146) ;  libel  by  a  railroad  company  (Rail- 
road v.  Quigley,  21  How.  202,  16  L.  Ed.  73) ;  fraud  and 
deceit,  assault  and  battery,  malicious  prosecution,  nui- 
sance, and  libel  (National  Bank  v.  Graham,  100  U.  S. 
699,  702,  25  L.  Ed.  750) ;  fraud  by  a  municipal  corpora- 
tion in  reports  of  distilled  spirits  to  revenue  collector 
(Salt  Lake  City  v.  Hollister,  118  U.  S.  256,  6  Sup.  Ct. 
1055,  30  L.  Ed.  176) ;  fraud  and  deceit  by  a  manufactur- 
ing company  (Butler  v.  Watkins,  13  Wall.  457,  463,  20 
L.  Ed.  629) ;  maintenance  of  a  nuisance  (Railroad  v. 
Baptist  Church,  108  U.  S.  317,  2  Sup.  Ct.  719,  27  L.  Ed. 
739) ;  assault  and  battery  by  an  express  company  (South- 
ern Ex.  Co.  v.  Platten,  36  C.  C.  A.  46,  93  Fed.  936) ;  ma- 
licious prosecution  by  a  manufacturing  company  ( Copley 
v.  Sewing  Machine  Co.,  2  Woods,  494,  Fed.  Cas.  No. 
3213) ;  boycotting  by  a  corporation  of  which  the  mem- 
bers were  mercantile  firms  (Hartnett  v.  Plumber's  Sup- 
ply Assn.,  169  Mass.  229,  47  N.  E.  1002,  38  L.  R.  A.  194) ; 
malicious  prosecution  by  a  savings  bank  (Reed  v.  Home 
Savings  Bank,  130  Mass.  443,  39  Am.  Rep.  468) ;  false 
representations  as  to  corporate  stock  by  a  manufactur- 
ing company  (Dorsey  Machine  Co.  v.  McCaffrey,  139  Ind. 
545,  38  N.  E.  208,  47  Am.  St.  Rep.  290) ;  false  impris- 
onment by  a  national  bank  (Wachsmuth  v.  Nat.  Bank, 
96  Mich.  426,  56  N.  W.  9,  21  L.  R.  A.  278) ;  conspiracy 
between  a  bank  through  its  president  and  a  merchant 
to  defraud  those  of  whom  latter  purchased  goods  (John- 
ston Fife  Hat  Co.  v.  National  Bank,  4  Okl.  17,  44  Pac. 
192).  It  is  also  well  settled  that  a  corporation  cannot 
escape  liability  upon  a  plea  that  the  tortious  acts  were 
ultra  vires.  Railroad  v.  Quigley,  21  How.  202, 16  L.  Ed. 
73;  Merchants'  Bank  v.  State  Bank,  10  Wall.  604,  645, 
19  L.  Ed.  1008;  County  of  Calhoun  v.  Emigrant  Com- 
pany, 93  U.  S.  124,  130;  23  L.  Ed.  826;  National  Bank 
v.  Graham,  100  U.  S.  699,  702,  25  L.  Ed.  750;  Salt  Lake 
City  v.  Hollister,  118  U.  S.  256,  6  Sup.  Ct.  1055,  30  L. 
Ed.  176;  Railway  v.  Harris,  122  U.  S.  597,  7  Sup.  Ct. 
1286,  30  L.  Ed.  146;  Railway  Co.  v.  Howard,  178  U.  S. 


POWER  TO  COMMIT  CRIMES  955 

153, 160;  Alexander  v.  Relfe,  74  Mo.  517;  Zinc  Carbonate 
Company  v.  First  National  Bank,  103  Wis.  125,  79  N.  W. 
229,  74  Am.  St.  Rep.  845. 

Question  627:  Name  a  number  of  torts  for  which  corpora- 
tions have  been  held  responsible. 

(Note:  Obviously  the  more  usual  tort  for  which  a  corpora- 
tion is  held  is  that  of  negligence,  as  witness  the  vast  amount  of 
personal  injury  litigation  in  our  courts.  See  the  Cases  in  Agency 
for  the  principles  by  which  an  employer  is  charged  with  the 
torts  of  his  employee.) 

Sec.  469.    Power  to  Commit  Crimes. 

Case  No.  628.  Telegram  Newspaper  Co.  v.  Com.,  172 
Mass.  294. 

Facts:  The  Newspaper  Company  was  a  corporation 
which  published  an  article  concerning  a  trial  in  progress, 
for  which  the  Court  entered  judgment  for  criminal  con- 
tempt of  court.  The  Newspaper  Company  brings  the 
case  up  to  the  present  court  by  writ  of  error. 

Point  Involved:  Whether  a  corporation  can  be  held 
guilty  of  a  crime  involving  evil  intent. 

Field,  C.  J.:  "It  is  contended  that  a  corpora- 
tion cannot  be  guilty  of  a  criminal  contempt  of  court, 
although  it  may  be  fined  for  what  is  called  a  'civil  con- 
tempt. '  It  is  said  that  an  intent  cannot  be  imputed  to 
a  corporation  in  criminal  proceedings.  It  has  been  de- 
cided in  this  commonwealth  that  a  corporation  may  be 
liable  civilly  for  a  libel  or  a  malicious  prosecution.  Fogg 
v.  Boston  &  L.  R.  Corp.,  148  Mass.  513;  Reed  v.  Home 
Sav.  Bank,  130  Mass.  443,  39  Am.  Rep.  468.  We  think 
that  a  corporation  may  be  liable  criminally  for  certain 
offenses,  of  which  a  specific  intent  may  be  a  necessary 
element.  There  is  no  more  difficulty  in  imputing  to  a 
corporation  a  specific  intent  in  criminal  proceedings  than 
in  civil.  A  corporation  cannot  be  arrested  and  impris- 
oned in  either  civil  or  criminal  proceedings ;  but  its  prop- 
erty may  be  taken,  either  as  compensation  for  a  private 


956  CORPORATIONS 

wrong  or  as  punishment  for  a  public  wrong.  In  most  of 
the  states  of  this  country  corporations  may  be  formed, 
under  general  laws,  for  the  purpose  of  doing  almost  any 
kind  of  business,  as  easily  as  partnerships,  and  many 
of  the  newspapers  are  published  by  corporations.  Al- 
though natural  persons  who  publish  or  assist  in  pub- 
lishing a  libel  in  a  newspaper  owned  by  a  corporation 
may  be  punished  criminally  by  fine  or  imprisonment, 
or  both,  yet,  if  the  corporation  cannot  be  punished  by  a 
fine,  it  will  escape  all  criminal  liability.  The  authors  of 
libels  are  often  irresponsible  persons,  and  the  remedy 
by  private  action  against  corporations  for  the  publish- 
ing of  libelous  statements  is  often  inadequate.  That  a 
corporation  may  be  indicted  for  a  misfeasance  as  well 
as  for  a  nonfeasance  has  been  decided  in  this  common- 
wealth. Com.  v.  Proprietors  of  New  Bedford  Bridge, 
2  Gray,  339.  See  Queen  v.  Great  North  of  England  Ey. 
Co.,  9  Q.  B.  315,  326.  A  corporation  may  be  indicted 
for  a  libel.  State  v.  Atchison,  3  Lea,  729,  31  Am.  Rep. 
663,  and  note ;  Brennan  v.  Tracy,  2  Mo.  App.  543 ;  Phar- 
maceutical Soc.  v.  London  &  P.  Supply  Asso.,  L.  R.  5 
App.  Cas.  857,  869,  870;  2  Bishop,  New  Crim.  Law,  Sees. 
9,  35;  Newell,  Defamation,  Slander  &  Libel,  2d  ed.  362, 
363;  Odgers,  Libel  &  Slander,  3d  ed.  436;     *     *     *" 

Question  628:  (1.)  "What  was  the  crime  for  which  the  cor- 
poration was  sought  to  be  held  in  this  case? 

(2.)  What  was  the  nature  of  the  business  carried  on  by  the 
defendant?  If  the  corporation  had  been  a  manufacturing  cor- 
poration and  one  of  its  agents  without  actual  authority  had 
made  statements  in  contempt  of  court  in  connection  with  a  case 
in  court  in  which  it  was  interested,  do  you  think  the  corporation 
could  have  been  fined  for  such  contempt  ? 

Case  No.  629.  People  v.  Rochester  R.&  L.  Co.,  195 
N.  Y.  102,  21  L.  R.  A.,  n.  s.  998. 

Hiscock,  J.,  delivered  the  opinion  of  the  court : 
"The  respondent  has  been  indicted  for  the  crime  of 
manslaughter  in  the  second  degree,  because,  as  alleged, 


POWER  TO  COMMIT  CRIMES  957 

it  installed  certain  apparatus  in  a  residence  in  Rochester 
in  such  a  grossly  improper,  unskillful,  and  negligent 
manner  that  gases  escaped  and  caused  the  death  of  an 
inmate.  The  demurrer  to  the  indictment  has  presented 
the  question  whether  a  corporation  may  be  thus  indicted 
for  manslaughter  under  Sec.  193  of  the  Penal  Code. 
Before  proceeding  to  the  interpretation  of  this  specific 
provision,  we  shall  consider  very  briefly  the  general  ques- 
tion discussed  by  the  parties,  whether  a  corporation  is 
capable  of  committing  in  any  form  such  a  crime  as  that 
of  manslaughter. 

1 '  Of  the  correctness  of  the  proposition  urged  in  behalf 
of  the  people,  that  it  may  do  so,  subject  to  various  lim- 
itations, we  entertain  no  doubt.  Some  of  the  earlier 
writers  on  the  common  law  held  that  a  corporation  could 
not  commit  a  crime.  Blackstone,  in  his  Commentaries, 
chap.  18,  sec.  12,  stated:  'A  corporation  cannot  commit 
treason  or  felony  or  other  crime  in  its  corporate  capac- 
ity, though  its  members  may,  in  their  distinct  individual 
capacities.'  And  Lord  Chief  Justice  Holt  (Anonymous, 
12  Mod.  555)  it  is  said  to  have  held  that  'a  corporation 
is  not  indictable,  although  the  particular  members  of  it 
are.'  In  modern  times,  however,  the  courts  and  text 
writers  quite  universally  have  reached  an  opposite  con- 
clusion. A  corporation  may  be  indicted  either  for  non- 
feasance or  misfeasance,  the  obvious  and  general  limita- 
tions upon  this  liability  being,  in  the  former  case,  that 
it  shall  be  capable  of  doing  the  act  for  non-performance 
of  which  it  is  charged,  and  that,  in  the  second  case,  the 
act  for  the  performance  of  which  it  is  charged  shall  not 
be  one  of  which  performance  is  clearly  and  totally  beyond 
its  authorized  powers.  Bishop,  New  Crim.  Law,  Sees. 
421,  422.  The  instances  in  which  it  has  been  held  that 
a  corporation  might  be  liable  criminally  simply  because 
it  did  or  did  not  perform  some  act,  and  where  no  element 
of  intent  was  supposed  to  be  involved,  are  so  familiar 
that  any  extended  reference  to  them  is  entirely  unneces- 
sary. 

1 '  The  latest  authority  in  this  state  upholding  such  lia- 


958  CORPORATIONS 

bility  is  found  in  the  case  of  People  v.  John  H.  Wood- 
bury Dermatological  Institute,  192  N.  Y.  455,  85  N.  E. 
697,  where  it  was  held  that  a  corporation  might  be  pun- 
ished criminally  for  disobeying  the  statute  providing 
that  'any  person  not  a  registered  physician,  who  shall 
advertise  to  practice  medicine,  shall  be  guilty  of  a  mis- 
demeanor.' There  was  involved  no  question  of  intent, 
but  simply  that  of  disobedience  of  a  statutory  provision 
against  doing  certain  acts.  At  times  courts  have  halted 
somewhat  at  the  suggestion  that  a  corporation  could 
commit  a  crime  whereof  the  element  of  intent  was  an 
essential  ingredient.  But  this  doctrine,  again  with  cer- 
tain limitations,  may  now  be  regarded  as  established, 
and  there  is  nothing  therein  which  is  either  unjust  or 
illogical.  Of  course,  it  has  been  fully  recognized  that 
there  are  many  crimes  so  involving  personal,  malicious 
intent,  and  acts  so  ultra  vires  that  a  corporation  mani- 
festly could  not  commit  them.  Wharton,  Crim.  Law, 
9th  ed.  sec.  91;  Morawetz,  Priv.  Corp.  2d  ed.  sees. 
732  et  seq.  But  a  corporation,  generally  speaking,  is 
liable  in  civil  proceedings  for  the  conduct  of  the  agents 
through  whom  it  conducts  its  business  so  long  as  they 
act  within  the  scope  of  their  authority,  real  or  apparent ; 
and  it  is  but  a  step  further  in  the  same  direction  to  hold 
that,  in  many  instances,  it  may  be  charged  criminally 
with  the  unlawful  purposes  and  motives  of  such  agents 
while  so  acting  in  its  behalf. 

(The  Court  holds  that  the  corporation  is  not  guilty 
of  manslaughter  under  the  statute,  because  manslaughter 
is  defined  in  New  York  as  the  "  killing  of  one  human 
being  by  the  act,  procurement,  or  omission  of  another 
[human  being]."  But,  the  Court  says,  "We  have  no 
doubt  that  a  definition  of  certain  forms  of  manslaughter 
might  have  been  formulated,  which  would  be  applicable 
to  a  corporation,  and  make  it  criminally  liable  for  vari- 
ous acts  of  misfeasance  and  non-feasance  when  resulting 
in  death  and  amongst  which  very  probably  might  be 
included  conduct  in  its  substance  similar  to  that  here 
charged  against  the  respondent.") 


POWER  TO  COMMIT  CRIMES  959 

Question  629:  (1.)  Can  a  corporation  be  criminally  liable  for 
causing  the  death  of  a  human  being  ? 

(2.)  Murder  being  the  crime  of  unlawfully  killing  a  human 
being  with  malice  aforethought,  do  you  think  a  corporation 
could  be  guilty  of  murder?  Do  you  think  it  could  be  guilty  of 
arson  or  burglary  because  its  officer  for  its  benefit  committed 
such  crime? 

(Note :  It  was  formerly  doubted  whether  a  corporation  could 
be  indicted  for  any  crime.  It  may  unquestionably  be  guilty  of 
crimes  that  do  not  involve  the  personal  element,  as  receiving 
rebates,  violating  child  labor  statutes,  etc.  And  in  recent  cases 
it  has  been  held  for  the  crime  of  involuntary  manslaughter. 
But  it  is  doubtful  if  a  corporation  could  be  held  for  crimes  like 
murder,  arson,  burglary,  and  the  like.) 

Case  No.  630.  The  Overland  Cotton  Mill  Co.  v.  People, 
32  Colo.  263. 

(Set  out  as  Case  No.  610,  supra.) 

Question  630:  What  crime  was  the  corporation  held  for  in 
this  case  ? 


CHAPTER    NINETY-ONE 
POWERS  OF  CONTRACTUAL  NATURE 

§  470.  Express  powers.  §  475.  Power  to  loan  money. 

§  471.  Implied  powers.     In  general.  §  476.  Power    to    acquire   shares    in 

§  472.  Power   to   acquire,   hold   and  other  corporations. 

grant  real  estate.  §  477.  Power    to    acquire    its    own 
§  473.  Power  to  lease  and  sell.  shares. 

§  474.  Power  to  borrow  money,  to 

mortgage,  etc. 

Sec.  470.    Express  Powers. 

Case  No.  631.  Attorney  General  v.  Belle  Isle  Ice  Co., 
26  N.  W.  Kep.  (Mich.)  311. 

Facts:  Suit  of  quo  warranto  by  the  Attorney  General 
to  determine  whether  the  Belle  Isle  Ice  Co.,  whose  char- 
ter provided  that  it  was  organized  for  the  purpose  of 
putting  up  and  packing  ice  and  distributing  and  selling 
the  same,  was  organized  for  a  purpose  authorized  by 
the  statute  providing  for  the  incorporation  of  companies 
for  "manufacturing"  purposes. 

Point  Involved:  Specifically  whether  cutting  natural 
ice  and  selling  same  is  "manufacturing";  generally,  a 
brief  discussion  of  the  express  charter  powers  of  cor- 
porations. 

Champlin,  J. :  "  •  *  *  The  law  requires  the  arti- 
cles of  association  [the  charter]  to  state  distinctly  and 
definitely  the  purpose  for  which  the  same  is  formed.  If 
it  does  not  state  a  purpose  for  which  the  statute  author- 
izes a  corporation  to  be  formed,  it  would  not  be  legally 
incorporated,  and  its  articles  would  afford  no  warrant 

960 


EXPRESS  CHARTER  POWERS  961 

for  the  exercise  of  corporate  action.  If  it  does  state 
such  a  purpose,  and  if  the  other  requirements  of  the 
law  are  complied  with  it  is  a  legal  corporation  and  au- 
thorized to  act  as  such.  In  either  case  the  articles  them- 
selves are  the  sole  criterion  to  ascertain  the  purpose  for 
which  it  was  formed,  and  the  intent  must  be  gathered 
alone  from  the  written  instruments  and  cannot  be  aided, 
or  varied  or  contradicted  by  testimony  or  averments 
aliunde  the  instrument  itself.  The  question,  therefore, 
is,  is  the  purpose  set  forth  in  the  articles  such  as  the 
statute  authorizes  the  formation  of  corporations  to  carry 
on?  We  think  it  is.  Its  expressed  purpose  is  to  manu- 
facture for  market  Detroit  river  and  lake  ice.  It  was 
not  necessary  for  the  articles  to  state  the  means  or 
methods  of  manufacture,  *  *  V  [The  Court  here 
holds  that  cutting  ice  as  naturally  frozen  in  rivers  and 
lakes  is  engaging  in  " manufacturing"  as  authorized  by 
the  statute,  and  that  the  company  is  a  legal  corporation.] 

Question  631:  Discuss  generally  the  necessity  that  the  char- 
ter powers  of  a  corporation  be  authorized  by  law,  how  such 
powers  should  be  stated,  whether  it  is  necessary  that  there 
should  be  a  statement  of  the  manner  or  means  of  accomplishing 
the  purpose. 

Case  No.  632.  People  v.  Chicago  Gas  Trust  Co.,  130 
111.  268. 

Facts:  Suit  by  the  Attorney  General  against  the 
Chicago  Gas  Trust  Co.,  to  question  by  what  right  it 
exercises  certain  powers.  The  company  was  formed 
under  the  general  corporation  law  of  Illinois  by  filing  a 
statement  of  incorporation  with  the  Secretary  of  State 
and  his  issuances  of  a  certificate  of  incorporation.  One 
of  the  objects  stated  was  the  power  to  hold  stock  in  other 
gas  companies.    The  general  law  forbids  this  being  done. 

Point  Involved:  That  the  powers  of  a  corporation 
formed  by  filing  statements  and  certificates  under  the 
general  corporation  act,  are  determined  by  the  powers 
and  objects  as  stated  in  such  statements  or  certificates, 


962  CORPORATIONS 

as  governed  by  the  general  laws  of  the  state,  and  that 
powers  stated  in  contravention  of  the  general  law  are 
void. 

Mr.  Justice  Magruder:    "*     *     * 

"The  power  to  purchase  and  hold  stock  in  other  com- 
panies must  be  the  subject  of  legislative  grant,  if  not 
in  all  cases,  at  least  in  cases  where  it  cannot  be  implied 
from  the  powers  expressly  granted.  The  general  incor- 
poration law  contains  no  grant  of  such  power  by  the 
legislature.  Can  a  corporation  organized  under  that  law 
be  clothed  with  such  a  power  by  merely  naming  it  in  the 
statement  filed  with  the  Secretary  of  State?  We  think 
not.  The  action  of  the  Secretary  of  State  in  issuing 
the  license  and  the  certificate  of  organization  is  neces- 
sarily, to  a  large  extent,  merely  ministerial.  (Oregon 
Ry.  Co.  v.  Oregonian  By.  Co.,  130  U.  S.  1;  4  Am.  &  Eng. 
Ency.  of  Law,  Tit.  Corporations,  page  192,  note  1.) 
Whether  the  articles  of  association,  consisting  of  the 
Statement,  the  License,  the  Report  of  the  Commissioners, 
the  Certificate  of  Organization,  etc.,  do  or  do  not  confer 
such  rights  and  powers  as  are  authorized  by  the  law,  is 
a  matter  for  judicial  determination. ' ' 

Question  632:     State  what  the  Court  held  in  this  case. 

Case  No.  633.  In  re  Journalists  Fund  of  Philadelphia, 
8  Philadelphia  Reports,  272. 

Proceeding  for  the  approval  of  a  charter. 

Paxson,  J.:  "This  charter  is  radically  defective  for 
the  following  reasons: 

"1.  The  object  of  the  association  is  not  sufficiently 
stated.  After  enumerating  for  distinct  'purposes'  for 
which  the  association  is  formed,  the  charter  goes  on  to 
say:  'For  such  other  purposes  as  may  be  agreed  upon 
by  the  association  in  the  future. ' 

"The  law  requires  the  Court  to  approve  the  'object' 
of  the  association.  How  can  we  do  so  when  such  object 
is  to  be  declared  in  the  future? 


IMPLIED  CHARTER  POWERS  963 

Question  633:  What  was  the  question  in  this  case  and  how 
did  the  Court  decide  it? 

Sec.  471.    Implied  Powers. 
Case  No.  634.    Curtiss  and  others  v.  Leavitt,  15  N.  Y.  9. 

Comstock,  J.  (page  64) :  "It  is  truly  said  that  cor- 
porations can  only  exercise  such  incidental  powers  as 
are  necessary  to  carry  into  effect,  the  express  objects  of 
their  charter.  But  necessity  is  a  word  of  flexible  mean- 
ing. There  may  be  an  absolute  necessity,  a  great  neces- 
sity and  a  small  necessity;  and  between  these  degrees 
there  may  be  many  others  depending  on  the  ever  varying 
exigencies  of  human  affairs. 

"It  is  plain  that  corporations,  in  executing  their  ex- 
press powers,  are  not  confined  to  means  of  such  indis- 
pensable necessity  that  without  them  there  could  be  no 
execution  at  all.  The  contrary  doctrine  would  lead  at 
once  to  a  very  great  absurdity;  for  if  there  are  several 
modes  of  accomplishing  the  end,  neither  one  is  indis- 
pensable, and  each  would  exclude  all  the  others.  And 
thus,  by  inevitable  logic,  an  express  grant  of  power  would 
lie  forever  dormant,  because  there  are  more  modes  than 
one  of  carrying  it  into  execution. 

"It  is  almost  as  difficult  to  say  that  the  incidental 
power  depends  for  its  existence  on  the  degree  of  neces- 
sity which  connects  it  with  the  power  in  chief.  Such  a 
doctrine  would  impose  upon  courts  a  never  ending  diffi- 
culty, for  the  inquiry  would  always  be  whether  the  chosen 
instrumentality  is  the  very  best  that  could  be  selected; 
and  if  not  the  very  best,  however  minute  the  difference 
may  be,  then  the  inevitable  decision  must  follow  that  the 
choice  was  fatally  bad,  although  strictly  adapted  to  the 
end  in  view  and  made  in  the  utmost  good  faith. 

"These  demonstrations,  for  such  they  appear  to  me, 
would  seem  to  leave  but  one  other  conclusion  which  is, 
that  corporations,  along  with  their  specific  powers,  take 
all  the  reasonable  means  of  execution,  all  that  are  con- 


964  CORPORATIONS 

venient  and  adapted  to  the  end  in  view,  although  not 
the  very  best  by  many  degrees  of  comparison.  And  this 
is  a  doctrine  which  must  necessarily  result  in  the  liberty 
of  choice  amongst  those  means.  The  choice  may  be  wise 
or  unwise.  If  made  in  the  exercise  of  an  intelligent  good 
faith,  the  wisdom  of  the  selection  may  be  called  in  ques- 
tion, but  the  power  to  make  it  cannot  be." 

Question  634:  What  general  rule  determines  what  incidental 
or  implied  charter  powers  are  possessed  by  a  corporation  ? 

Case  No.  635.  Louisville,  etc.  Co.  v.  Commonwealth  of 
Kentucky,  146  Ky.  827. 

Facts:  Suit  brought  by  the  State  of  Kentucky  under 
a  law  providing  that  in  case  a  railroad  company  owns 
property  for  more  than  five  years,  not  devoted  to  rail- 
road purposes,  the  same  shall  escheat  to  the  state.  The 
defendant  company's  holdings  are  attacked  because  it 
appeared  that  the  defendant  company  was  operating  a 
hotel  and  using  certain  lands  for  park  purposes.  The 
railroad  company  in  order  to  avoid  escheat  claims  that 
under  the  circumstances  these  lands  are  held  for  proper 
and  legitimate  purposes  in  the  general  operation  of  a 
railroad.  It  appeared  that  the  hotel  was  situated  as  a 
depot  hotel,  that  more  than  80  trains  passed  in  and  out 
each  day,  that  about  300  employees  at  that  point  daily, 
and  that  many  passengers  found  hotel  accommodations 
there  while  transferring  from  train  to  train  or  waiting 
for  trains.  The  park  was  a  small  tract  of  land  contiguous 
to  the  right  of  way  and  near  the  depot  building,  which 
the  railroad  had  laid  out  with  shrubbery,  flowers,  shade 
trees,  fountains  and  walks. 

Point  Involved:  Whether  a  company  organized  for 
general  railroad  purpose  has  the  implied  power  to  main- 
tain a  hotel  and  small  park  under  the  circumstances 
stated. 

Lassing,  J.:  "The  proof  in  this  case  shows  that 
the    hotel    property    cost    the    company    more    than 


IMPLIED  CHARTER  POWERS  965 

$30,000,  and  that  it  spent  annually  in  taxes  and  repairs 
upon  the  hotel  building  the  larger  part  of  the  rental  de- 
rived therefrom,  and  that  it  cannot  be  said  that  it  is 
running  it  for  profit.  On  the  contrary,  the  evidence  fully 
justifies  the  allegation  that  it  is  held  and  maintained 
solely  for  the  benefit  of  the  public  traveling  on  its  trains 
and  such  of  the  employes  of  appellant  as  are,  from  the 
nature  of  their  duties,  required  to  take  their  meals  and 
sleep  there  at  Guthrie.  Nor  is  this  all.  It  appears  that 
under  the  contract  of  lease  the  toilets  and  waiting  rooms 
of  the  hotel  are  for  the  special  use  of  the  lady  passen- 
gers stopping  at  Guthrie;  and  a  temporary  hospital  is 
provided  for  in  one  of  the  rooms  of  the  hotel.  The 
building  being  under  control  of  the  company,  it  is  in  a 
position  to  see  that  the  wants  of  the  passengers  and 
employes  are  properly  supplied ;  and  while  there  is  some 
evidence  that  the  prices  charged  are  high,  they  are  not 
out  of  proportion  to  the  accommodations  furnished.  Con- 
sidering the  needs  of  the  place  and  the  character  of  the 
use  to  which  this  hotel  property  is  put,  we  are  satisfied 
that  the  Court  did  not  err  in  holding  that  these  tracts 
were  not  subject  to  escheat. 

"The  right  of  the  railroad  to  hold  tract  4  as  a  park 
presents  a  new  question.  We  are  furnished  no  authority 
by  counsel  for  either  side,  nor  have  we  been  able  to  find 
any  bearing  upon  this  subject.  And  yet  we  know  that 
it  is  a  custom  of  railroads  generally,  and  particularly 
the  great  transcontinental  roads,  to  convert  the  small, 
unoccupied  tracts  of  land  lying  adjacent  to  and  near 
their  depots  into  miniature  parks,  and  beautify  them  by 
planting  shade  trees,  flowers,  and  shrubbery,  and  laying 
walks  through  them,  and  frequently,  as  in  the  present 
case,  building  pools  and  putting  fountains  therein.  The 
very  fact  that  this  custom  has  so  universally  obtained  is 
suggested  that  it  has  not  been  regarded  as  violative  of 
the  rights  of  the  company  so  to  do.  Unquestionably,  in 
this  way  the  company  adds  to  the  pleasure  of  its  passen- 
gers, and  frequently  to  the  comfort,  both  of  its  passen- 
gers and  employes ;  for  these  parks  are  not  only  pleasing 


966  CORPORATIONS 

to  the  eye,  but  they  add  materially  to  the  comfort  of 
passengers  and  employes  waiting  for  the  arrival  and 
departure  of  trains,  by  affording  them  a  place  for  recrea- 
tion and  rest.  The  statutes  require  that  the  company 
shall  provide  suitable  and  convenient  waiting  rooms  at 
all  depots  for  the  accommodation  of  passengers.  The 
object  in  view  is  the  comfort  of  the  traveling  public; 
and  the  more  perfectly  the  wants,  needs,  and  interests 
of  the  traveling  public  are  provided  for,  the  more  pop- 
ular the  road  becomes  as  a  common  carrier.  The  main- 
tenance of  the  park  is  no  wise  profitable  to  the  company. 
On  the  contrary,  it  is  a  source  of  constant  expense.  It 
can  serve  no  possible  purpose,  except  to  add  to  the  at- 
tractiveness of  the  depot  and  its  surroundings,  and  to 
the  comfort  of  the  employes  and  passengers  of  the  com- 
pany who  are  required  to  be  and  remain  at  the  depot. 

#  #     * 

"Coextensive  with  the  custom  of  railroads  to  build 
and  maintain  parks  at  and  near  their  depots  is  that  of 
building  and  keeping  Y.  M.  C.  A.  rooms  at  points  along 
the  line  of  their  road  where  their  employes  are  required 
to  congregate  in  numbers.  These  buildings  are  erected 
solely  for  the  benefit  of  the  employes  of  the  company. 

*  *  *  In  order  to  justify  the  railroad  to  hold  land 
for  park  purposes,  two  things  must  concur:  First,  the 
land  so  held  must  lie  at  or  near  the  depot,  so  as  to  be 
of  easy  access  to  its  passengers  and  employes ;  and,  sec- 
ond, it  must  be  reasonable  in  size,  taking  into  considera- 
tion the  extent  of  travel  to  and  from  such  depot  and  the 
number  of  employes  whose  duties  require  them  to  be 
there.  In  other  words,  the  park  must  be  in  keeping  with 
the  size  of  the  place  and  other  accommodations  and  con- 
veniences furnished  by  the  railroad  at  that  point.  If 
these  two  necessary  prerequisites  are  complied  with, 
neither  the  letter  nor  the  spirit  of  the  Constitution  or 
statute  will  be  violated.' ' 

Question  635:  (1.)  "What  did  the  Court  hold  with  reference 
to  the  right  of  the  railroad  to  operate  the  hotel  ?    What  was  the 


IMPLIED  CHARTER  POWERS  967 

reasoning  of  the  Court  ?  Do  you  infer  from  that  reasoning  that 
the  company  could  have  operated  hotels  generally? 

(2.)  With  reference  to  the  right  to  maintain  the  park,  what 
did  the  Court  hold?    On  what  reasoning? 

(3.)  Can  a  railroad  corporation  properly  devote  its  funds 
and  property  to  maintain  a  Y.  M.  C.  A.  for  its  employees? 

(4.)  The  W.  M.  R.  Co.  in  anticipation  of  increased  business 
guaranteed  the  payment  of  the  dividends  on  the  stock  and  the 
interest  on  the  bonds  of  the  B.  R.  Hotel  Company,  a  summer 
hotel  located  in  a  town  upon  its  railroad.  No  connection  with 
the  railroad  business  is  shown,  except  that  it  increased  the  traffic 
of  the  railroad.  Is  the  contract  within  the  power  of  the  cor- 
poration ?  (Western  Maryland  R.  Co.  v.  Blue  Ridge  Hotel  Co., 
102  Md.  307,  2  L.  R.  A.  new  series,  887.) 

(5.)  Do  you  think  that  the  mere  fact  that  an  activity  of  a 
corporation  is  profitable  to  it,  would  decide  whether  the  activity 
was  within  the  power  of  the  corporation  ? 

Case  No.  636.  Central  Lumber  Co.  v.  Kelter,  201 
111.  502. 

Facts:  The  lumber  company  is  sued  as  surety  on  a 
bond  executed  by  a  building  contractor.  The  contractor 
gave  the  bond  to  protect  the  owner  of  the  building  against 
his  default,  and  the  lumber  company  became  surety  on 
the  bond.  The  lumber  company  executed  the  bond  in 
order  to  obtain  the  contract  for  the  sale  of  the  lumber 
to  be  used  in  the  building.  Defense  by  the  lumber  com- 
pany that  it  had  no  power  to  execute  the  bond. 

Point  Involved:  Whether  a  lumber  company  has 
power  to  become  surety  on  a  building  contractor's  bond 
as  a  part  of  its  act  in  securing  the  sale  of  lumber  to  said 
building  contract. 

Mr.  Justice  Wilkin:  "*  *  *  It  is  again  con- 
tended that  the  bond  sued  on  was  ultra  vires  the  power 
of  the  corporation.  The  company  was  organized  for  'the 
purchase  and  sale  of  lumber  and  all  adjuncts  for  carry- 
ing on  a  general  lumber  business.'  If  the  bond  was 
executed  on  the  part  of  the  corporation  for  the  purpose 
of  securing  a  sale  of  lumber  to  Eafferty,  the  contractor, 
the  making  of  the  bond  was  within  its  implied  powers." 


968  CORPORATIONS 

Question  636:  (1.)  State  the  facts,  the  question  presented 
and  the  Court's  decision  in  the  above  case. 

(2.)  The  A  brewery  company  having  no  express  power  to 
loan  money,  loaned  B,  a  saloonkeeper,  a  sum  of  money,  to  enable 
him  to  start  in  the  saloon  business  in  which  the  brewery  com- 
pany 's  beer  would  be  sold.  Is  this  act  within  the  charter  powers 
of  the  corporation?  (Kraft  v.  West  Side  Brew.  Co.,  219  111. 
205.) 

Case  No.  637.     Best  Brewing  Co.  v.  Klassen,  185  111.  37. 

Facts:  The  Brewing  Company  is  sued  upon  an  appeal 
bond.  The  bond  was  given  by  an  appellant  in  a  case  to 
which  the  Brewing  Company  was  not  a  party,  and  the 
Brewing  Company  signed  said  bond  as  surety  thereon. 

Point  Involved:  Whether  a  corporation  organized  for 
brewery  purposes  is  within  its  charter  power  in  becom- 
ing surety  upon  an  appeal  bond,  no  direct  advantage  in 
the  prosecution  of  the  business  of  the  company  being 
thereby  shown. 

Mr.  Justice  Wilkin:  "We  think  the  primary  ques- 
tion here  is  not  whether  appellant  has  reaped  a  benefit 
from  the  act  of  becoming  surety  for  Rounds  upon  the 
bond,  but  whether  the  act  of  signing  it  was  within  the 
scope  of  its  corporate  authority.  The  purpose  of  the 
corporation,  as  expressed  in  its  charter,  is  to  manufac- 
ture and  sell  ale,  beer  and  porter  and  carry  on  a  general 
brewing  business.  It  would  seem  no  acts  could  be  more 
unlike  than  the  doing  of  those  authorized  by  the  charter 
of  the  company,  and  the  signing  of  the  appeal  bonds  as 
surety.  The  instrument  was  executed  in  a  suit  not  by 
or  against  the  corporation,  but  by  a  third  person  against 
another  to  recover  possession  of  the  house.  Prima  facie 
the  signing  of  the  company  of  an  appeal  bond  in  such  a 
suit  was  an  act  beyond  the  purpose  for  which  it  was  or- 
ganized, and  consequently  illegal.  If  it  had  been  shown 
that  it  was  executed  clearly  for  the  purpose  of  promoting 
or  protecting  its  own  business  of  brewing  or  selling  beer, 
etc., — that  is  to  say,  if  the  act  had  been  reasonably  neces- 
sary to  accomplish  the  end  for  which  the  corporation  was 


IMPLIED  CHARTER  POWERS  969 

formed — it  would  have  been  within  the  scope  of  the  cor- 
porate power.  But  it  cannot  be  held  that  every  act  in 
furtherance  of  the  interests  of  a  corporation  is  inter  vires. 
Many  acts  can  be  suggested  which  though  beneficial  to 
the  business  of  a  corporation,  are  too  remote  from  its 
general  purposes  to  be  deemed  reasonably  within  its  im- 
plied powers.  What  is  and  what  is  not  too  remote  must 
be  determined  according  to  the  facts  of  each  case.  The 
rule  has  been  stated  to  be:  In  exercising  powers  con- 
ferred by  its  charter,  a  corporation  may  adopt  any  proper 
and  convenient  means  tending  directly  to  their  accom- 
plishment, and  not  amounting  to  the  transaction  of  a 
separate,  unauthorized  business." 

Question  637:  (1.)  State  the  facts  in  this  case  and  the 
Court's  decision. 

(2.)     How  does  this  case  differ  from  the  preceding  case? 

Sec.  472.    Implied  Power  to  Acquire,  Hold  and  Grant 

Real  Estate. 

(See  the  cases  of  Louisville,  etc.  Co.  v.  Com.  of  Ken- 
tucky, supra.) 

Case  No.  638.    Barnes  v.  Suddard,  117  HI.  237. 

Facts:  Suit  in  ejectment  brought  by  plaintiff  to  oust 
the  defendant  from  certain  real  estate.  Both  parties 
claim  title  from  Charles  D.  Fairbanks  as  a  common 
source.  Charles  D.  Fairbanks  conveyed  to  A.  P.  Fair- 
banks, who  conveyed  to  plaintiff.  Before  this  convey- 
ance by  Charles  D.  Fairbanks,  through  which  plaintiff 
traces  his  title,  Charles  D.  Fairbanks  had  conveyed  the 
property  to  the  United  States  Steam  Feed  Co.,  a  cor- 
poration organized  under  the  laws  of  Connecticut,  and 
through  that  deed  defendant  traces  his  line  of  title. 
Plaintiff  contends  that  the  deed  to  such  corporation  was 
void  and  therefore  no  title  had  passed  out  of  Fairbanks 
prior  to  the  time  he  conveyed  to  plaintiff's  grantor.  The 
corporation  was  chartered  by  the  state  of  Connecticut 
"to  make  and  sell  feed  for  horses  and  cattle,     *     *     *, 


970  CORPORATIONS 

and  to  buy  and  sell  and  deal  generally  in  such  real  and 
personal  estate  as  may  be  necessary  and  convenient  in 
the  prosecution  of  said  business.  The  statutes  of  Con- 
necticut provided  that  any  corporation  may  hold  prop- 
erty necessary  for  its  purposes  and  such  as  shall  be  taken 
in  payment  of  or  as  security  for  debts  due  to  it."  The 
statutes  of  Illinois  (where  the  land  in  question  is  sit- 
uated) provided  that  corporations  may  own,  possess  and 
enjoy  so  much  real  and  personal  estate  as  shall  be  neces- 
sary for  the  transaction  of  their  business,  and  also  that 
foreign  corporations  doing  business  in  the  state  shall  be 
subject  to  like  limitations  as  the  home  corporations  and 
shall  have  no  other  or  greater  powers.  The  land  in  ques- 
tion was  acquired  by  the  corporation  in  exchange  for  the 
right  granted  by  it  to  make,  use  and  sell  feed  for  horses 
and  cattle  in  the  state  of  Colorado  under  the  letters 
patent  held  by  the  corporation.  This  was  the  only  busi- 
ness ever  transacted  in  Illinois  and  the  land  was  never 
used  for  corporate  purposes  and  evidently  was  not  pur- 
chased for  any  corporate  purpose. 

Point  Involved:  The  power  of  a  corporation  to  ac- 
quire, hold  and  grant  real  estate ;  whether  anyone  except 
the  state  may  question  such  power. 

Mr.  Justice  Craig: 

"If  we  are  correct  in  this  position,  that  the  Connecticut 
corporation  had  the  power  to  acquire  real  estate  in  this 
state  necessary  for  the  transaction  of  its  business,  or 
such  as  may  be  taken  in  payment  or  as  security  for  debts, 
as  we  think  it  is  clear  it  had,  the  remaining  question  to  be 
determined  is,  whether  the  deed  is  void  for  the  reason 
and  upon  the  ground  that  the  property  purchased  was 
not  necessary  for  the  transaction  of  the  business  of  the 
corporation.  It  will  be  remembered  that  this  question 
arises  collaterally,  and  not  in  a  direct  proceeding  against 
the  corporation  to  determine  its  powers,  rights  or  privi- 
leges. Dillon,  in  his  work  on  Municipal  Corporations, 
Sec.  444,  in  the  discussion  of  the  question  says :  *  Whether 
a  municipal  corporation  with  power  to  purchase  and  hold 


IMPLIED  CHARTER  POWERS  971 

real  estate  for  certain  purposes,  has  acquired  and  is  hold- 
ing such  property  for  other  purposes,  is  a  question  which 
can  only  be  determined  in  a  proceeding  instituted  at  the 
instance  of  the  state.  If  there  is  capacity  to  purchase, 
the  deed  to  the  corporation  divests  the  estate  of  the 
grantor,  and  there  is  a  complete  sale;  and  whether  the 
corporation,  in  purchasing,  exceeds  its  powers,  is  a  ques- 
tion between  it  and  the  state,  and  does  not  concern  the 
vendor  or  others.'  The  rule  announced  by  Dillon  has 
been  indorsed  by  two  well  considered  cases  in  Indiana — 
Hayward  v.  Davidson,  41  Ind.  214,  and  Baker  v.  Neff, 
73  id.  68.  Other  states  where  the  question  has  been  pre- 
sented, adopted  the  same  rule,  and  the  Supreme  Court 
of  the  United  States,  in  National  Bank  v.  Matthews,  98 
U.  S.  628,  hold  to  the  same  doctrine. 

n*  *  #  jjad  the  corporation  been  clothed  with  no 
power  to  acquire  real  estate  in  this  state,  or  if  the  pur- 
chase had  been  prohibited  by  statute  or  contrary  to  the 
manifest  policy  of  our  laws,  a  different  question  would  be 
presented,  and  the  cases  of  Carroll  v.  East  St.  Louis,  67 
111.  568,  and  Starkweather  v.  American  Bible  Society,  72 
id.  50,  might  properly  be  invoked  as  authority;  but  such 
is  not  the  case." 

Question  638,:  (1.)  What  express  power  by  charter  law 
did  the  corporation  in  question  have  to  hold  real  estate  ? 

(2.)  What  did  the  Court  hold  about  the  right  to  raise  in 
this  case  the  question  of  the  power  to  hold  real  estate  ?    Why  ? 

(3.)     Who  could  raise  the  question? 

(4.)  Suppose  this  corporation  had  no  power  to  hold  real 
estate  for  any  purpose,  what  did  the  Court  suggest  would  then 
have  been  the  result? 

Sec.  473.    Power  to  Lease  and  Sell. 

(Note :  A  private  corporation  has  power  to  lease  and  sell  any 
or  all  of  its  property.  Public  service  corporations  have  no  such 
right  except  pursuant  to  statute  or  their  charter.) 

Sec.  474.    Power  to  Borrow  Money,  to  Mortgage,  etc. 

Case  No.  639.  Alton  Mfg.  Co.  v.  Garrett  Biblical  In- 
stitute, 243  111.  298. 


972  CORPORATIONS 

Facts:  The  Alton  Mfg.  Co.  sued  the  Garrett  Biblical 
Institute  on  three  promissory  notes.  They  were  signed 
"Garrett  Biblical  Institute,  by  Robert  D.  Shepherd, 
treasurer. ' '  They  were  payable  to  the  order  of  Everett 
0.  Fisk,  and  were  endorsed  by  Fisk  to  the  Alton  Mfg. 
Co.  The  institute  denied  that  the  notes  were  its  notes 
and  relied  on  its  lack  of  charter  power  to  make  the  notes, 
and  also  on  the  authority  of  the  treasurer  to  bind  it  on 
the  notes.  The  evidence  was  that  the  treasurer  was  also 
a  trustee,  and  that  he  was  given  by  the  board  an  extensive 
fiscal  authority,  including  the  power  to  borrow  money  for 
some  purposes.  The  Court  peremptorily  directed  a  ver- 
dict for  the  defendant,  and  the  plaintiff  appeals  to  the 
present  Court. 

Mr.  Chief  Justice  Farmer  delivered  the  opinion  of  the 
Court : 

"The  first  question  necessary  to  be  determined  is 
whether  the  Garrett  Biblical  Institute,  under  its  charter, 
was  authorized  to  borrow  money  for  its  corporate  pur- 
poses. The  answer  to  this  question  must  depend  upon 
the  provisions  of  the  charter  under  which  the  corpora- 
tion is  operating,  for  the  powers  which  any  corporation  is 
permitted  to  exercise  are  those,  only,  which  its  charter 
confers  upon  it,  either  by  express  grant  or  by  implica- 
tion, and  the  implied  powers  are  recognized  and  given 
effect  for  the  purpose  of  enabling  such  bodies  to  exercise 
the  express  powers  granted.  An  incidental  power  is  one 
that  is  directly  and  immediately  appropriate  to  the  exe- 
cution of  the  specific  power  granted,  and  not  one  that  has 
a  slight  or  remote  relation  to  it.     *     *     * 

"The  Garrett  Biblical  Institute  is  a  charitable  corpora- 
tion, created  primarily  for  educational  purposes.  It  is 
expressly  empowered  to  establish  and  maintain  within 
the  bounds  of  Cook  county  a  biblical  institute  under  the 
patronage  and  control  of  the  Methodist  Episcopal  Church. 
The  conduct  and  control  of  the  corporation  are  placed  in 
a  board  of  trustees.  *  *  *  It  is  expressly  declared 
that  appellee  'shall  be  capable,  in  law,  of  taking  and 


IMPLIED  CHARTER  POWERS  973 

holding,  by  gift,  grant,  devise  or  otherwise,  and  of  pur- 
chasing, holding  and  conveying,  both  in  law  and  equity, 
any  estate  or  interest  therein,  real,  personal  or  mixed, 
and  shall  have  power  to  execute  and  fulfill  all  such  trusts 
as  may  be  confided  to  said  corporation,  and  to  take,  hold, 
use,  manage,  lease  and  dispose  of  all  such  trust  property 
as  may  in  any  manner  come  to  said  corporation  charged 
with  any  trust  or  trusts  in  conformity  therewith.' 

"It  will  be  observed  that  the  power  to  borrow  money 
and  issue  notes  therefor  is  not  expressly  granted  to  ap- 
pellee by  the  terms  of  its  charter.  But  the  almost  uni- 
versal rule  of  law  is,  that  corporations  possess  the  im- 
plied power  to  borrow  money  when  necessary  /to  carry 
out  the  purposes  of  their  organization,  and  when  such 
power  is  possessed  and  debts  contracted  thereunder  a 
corporation  may  execute  its  notes  or  other  customary 
evidences  of  indebtedness  therefor.     *     *     * 

"The  charter  of  appellee  does,  however,  grant  to  it  the 
express  power  of  purchasing,  holding  and  conveying,  in 
law  and  equity,  any  estate  or  interest  therein,  real,  per- 
sonal or  mixed,  and  the  power  to  hold,  use  and  manage 
the  same.  Under  this  power  it  cannot  be  questioned  that 
appellee  may  expend  money  for  the  purchase  of  real 
estate  for  the  use  of  the  institute  and  to  maintain  and 
keep  it  in  repair,  and  it  is  equally  clear  that  if  it  did  not 
possess  the  ready  funds  at  a  time  when  it  might  be  neces- 
sary to  the  purposes  of  the  corporation  to  make  a  pur- 
chase of  real  estate  or  necessary  to  make  expenditures 
for  needed  repairs  and  maintenance  of  property  which  it 
owned,  under  its  charter  it  possessed  the  implied  power 
to  borrow  money  for  such  purposes  and  give  its  notes 
therefor.  The  trustees  having  power  to  borrow  money 
for  proper  corporate  purposes  and  execute  notes  there- 
for, might  exercise  this  authority  in  a  number  of  ways : 
(1)  They  might  appoint  one  of  their  number  as  agent  of 
the  corporation  for  that  purpose  and  expressly  or  im- 
pliedly clothe  him  with  authority  to  borrow  money  and 
give  notes;  (2)  where  no  actual  authority  has  been  con- 
ferred upon  the  agent  of  the  corporation  to  borrow  money 


974  CORPORATIONS 

and  give  notes  but  where  the  agent  has  done  so,  and  with 
full  knowledge  of  all  the  facts  the  corporation  has  ap- 
proved and  ratified  the  acts  of  the  agent,  it  will  be  liable 
to  the  same  extent  as  if  actual  authority  had  been  given 
to  perform  the  acts;  (3)  where  no  authority  had  been 
given  or  existed  in  the  agent  to  borrow  money  but  where 
the  corporation  received  the  use  and  benefit  of  the  money 
it  will  be  liable ;  (4)  by  holding  an  agent  out  to  the  pub- 
lic as  possessing  authority  to  exercise  the  powers  as- 
sumed by  the  agent  and  to  do  the  acts  performed  by  him, 
in  which  case  the  corporation  would  be  bound  to  the 
extent  of  the  agent's  apparent  authority. 

"Our  first  inquiry,  then,  relates  to  the  correctness  of 
the  ruling  of  the  trial  court  in  holding  that  there  was  no 
evidence  tending  to  show  that  Dr.  Shepherd,  treasurer 
and  'business  agent'  or  'business  manager'  of  the  cor- 
poration, had  ever  been  given  any  authority  by  the 
trustees  to  borrow  money  and  execute  the  notes  of  the 
corporation  therefor.  This  necessitates  an  examination 
of  the  testimony  to  some  extent."  [Here  the  court  re- 
views the  evidence.  The  court  then  concludes  that  the 
evidence  produced  by  the  plaintiff  was  sufficient  to  go 
to  the  jury,  and  concludes  as  follows] : 

"The  evidence,  we  think,  was  sufficient  to  justify  sub- 
mitting to  the  jury  the  liability  of  appellee  on  three 
grounds:  First,  whether  the  money  was  borrowed  by 
authority,  express  or  implied,  of  the  corporation;  sec- 
ond, if  not  borrowed  in  pursuance  of  authority  pre- 
viously given,  did  the  corporation,  after  knowledge  of 
the  fact  of  its  being  borrowed,  approve  or  ratify  it? 
Third,  if  it  was  borrowed  without  previous  authority, 
and  was  not  afterwards,  with  knowledge,  ratified  by  the 
corporation,  did  it  receive  the  use  and  benefit  of  the 
money?  It  will,  of  course,  be  understood  that  we  do 
not  intend,  by  what  is  said  herein,  to  express  any  opin- 
ion as  to  the  weight  of  the  evidence.  What  we  have 
held  is,  that  upon  certain  grounds  mentioned,  the  evi- 
dence was  sufficient  to  require  the  case  to  be  submitted 
to  the  jury. 


IMPLIED  CHARTER  POWERS  975 

"The  judgments  of  the  Appellate  and  Municipal 
courts  are  reversed  and  the  cause  remanded.' ' — Re- 
versed and  remanded  [for  new  trial]. 

Question  639:  (1.)  How  does  the  Court  define  an  "im- 
plied" or  "incidental  power"?  What  do  such  powers,  generally 
speaking,  include? 

(2.)  Did  this  corporation  have  express  power  to  borrow 
money?    Did  it  have  implied  power? 

(3.)  Did  the  treasurer,  by  virtue  of  his  office,  have  power 
to  borrow  money  ?    Could  he  be  given  that  power  ? 

(4.)  What  three  questions  were  put  by  the  Court,  as  ques- 
tions which  the  plaintiff  was  entitled  on  its  evidence  to  have  a 
jury  answer? 

Sec.  475.    Power  to  Loan  Money. 

Case  No.  640.     Canning  Co.  v.  Stanley,  133  Iowa  57. 

McClain,  J.:  "*  *  *  While  it  is  true  as  a  gen- 
eral proposition,  that  a  corporation  authorized  by  its 
articles  only  to  carry  on  a  mercantile  or  manufacturing 
business  has  no  authority  to  engage  in  the  business  of 
loaning  money,  it  does  not  follow  that  it  has  not  the 
power  in  the  management  of  its  funds  to  loan  them  out 
temporarily  at  interest  when  not  needed  in  the  prosecu- 
tion of  its  business.  The  loaning  of  money  not  being 
expressly  prohibited  to  the  corporation  it  may  as  we 
think  without  any  question  make  such  temporary  dis- 
position of  the  funds  which  it  has  on  hand  from  time  to 
time  as  to  secure  a  profit,  the  very  object  of  its  organiza- 
tion being  to  earn  money  for  its  stockholders  in  the 
prosecution  of  its  business.  Such  a  temporary  and  inci- 
dental loaning  of  money  is  not  the  engaging  in  the  busi- 
ness of  making  loans  which  is  outside  the  scope  of  the 
authority  of  manufacturing  corporations. ' ' 

Question  640:  Has  a  manufacturing  or  commercial  corpora- 
tion the  power  to  loan  money  ? 

(Note :  Loaning  money  is  ordinarily  beyond  the  power  of  a 
corporation  not  organized  for  banking  purposes.     Accordingly 


976  CORPORATIONS 

a  loan  of  its  funds  made  by  its  President  or  other  officers  can 
usually  be  recalled  prior  to  the  maturity  of  the  loan.) 

Sec.  476.  Power  to  Acquire  Shares  in  Other  Corporations. 

Case  No.  641.     Converse  v.  Emerson  &  Co.,  242  111.  619. 

Facts:  Converse,  as  receiver  of  Minnesota  Thresher 
Mfg.  Co.,  brings  suit  against  Emerson,  Talcott  &  Co.  to 
recover  assessments  levied  by  the  Minnesota  courts  on 
the  stock  of  the  Minnesota  Company,  and  in  which  the 
Emerson  Company  appears  as  an  original  subscriber. 
The  Emerson  Company  had  been  a  creditor  of  the  N.  W. 
Mfg.  and  Car  Co.  Such  company  having  become  in- 
solvent, its  creditors,  including  the  Emerson  Company 
organized  a  new  company,  the  present  Minnesota 
Thresher  Mfg.  Co.,  whose  charter  stated  that  its  object 
was  to  take  over  the  capital  stock  and  assets  of  the 
former  company  and  to  engage  in  a  manufacturing  busi- 
ness. The  Minnesota  statute  provides  for  a  double  lia- 
bility on  shareholders  in  the  event  of  insolvency  and  an 
assessment  is  now  made  according  to  such  law.  Suit  is 
brought  in  the  Illinois  courts  to  enforce  such  liability. 

Point  Involved:  Whether  a  corporation  can  be  a  sub- 
scriber to  the  shares  or  a  stockholder  in  another  cor- 
poration. 


Mr.  Justice  Cooke:    "*     *     * 

"A  corporation  is  but  the  creature  of  the  statute,  and 
it  can  exercise  no  greater  powers  than  those  which  are 
expressly  conferred  upon  it  by  its  charter  or  which  must 
be  necessarily  implied  from  its  charter.  The  charter  of 
the  appellee  company  empowered  it  only  to  engage  in 
the  business  of  manufacturing  and  selling  certain  arti- 
cles. It  had  no  authority,  either  express  or  implied,  to 
participate  in  the  organization  of  other  corporations, 
either  for  speculative  or  for  manufacturing  purposes. 
It  is  earnestly  contended  on  the  part  of  the  appellant 
that  the  stock  in  question  was  taken  by  the  appellee  com- 


IMPLIED  CHARTER  POWERS  977 

pany  simply  to  secure  an  indebtedness,  and  that  it  was 
clearly  within  the  powers  of  appellee  to  take  and  hold 
the  stock  for  this  purpose,  and  that  by  so  taking  and 
holding  it  the  appellee  company  assumed  all  the  liabili- 
ties of  a  legitimate  holder  of  the  stock.  Without  passing 
upon  the  question  whether,  in  any  event,  the  appellee 
would  have  the  right  to  take  the  stock  of  another  corpora- 
tion to  secure  the  payment  of  an  existing  indebtedness, 
we  do  not  agree  with  the  view  of  appellant.  Under  the 
facts  as  agreed  upon  in  this  case  it  is  clear  that  the 
appellee  company  did  not  receive  this  stock  in  payment 
of  a  debt.  The  thresher  company  was  not  indebted  to 
appellee.  The  debt  referred  to  was  owing  to  appellee 
by  a  different  corporation.  The  appellee  became  one  of 
the  organizers  of  the  thresher  company  for  the  purposes 
for  which  that  cdmpany  was  incorporated  and  was  one 
of  the  original  subscribers  for  its  stock.  Its  act  in' so 
doing  was  ultra  vires  its  charter  and  void,  and  this  suit 
cannot  be  maintained  thereon.  People  v.  Pullman  Gar 
Co.,  175  HI.  125;  People  v.  Chicago  Gas  Trust  Co.,  130 
id.  268 ;  National  Home  Building  Assn.  v.  Home  Savings 
•Bank,  181  id.  35. 

"Appellant  further  contends  that  appellee  is  now 
estopped  from  setting  up  the  doctrine  of  ultra  vires  for 
the  reason  that  for  a  period  of  twenty-three  years  it 
held  the  stock  and  participated  in  the  management  of 
the  thresher  company  and  received  all  the  benefits  accru- 
ing to  a  stockholder.  It  appears  that  no  dividends  have 
ever  been  declared  on  this  stock.  If  any  material  benefit 
has  been  received  by  appellee  on  account  of  its  supposed 
ownership  of  this  stock  the  appellant  herein  has  an  ade- 
quate remedy.  In  the  case  of  National  Home  Building 
Ass.  v.  Home  Savings  Bank,  supra,  it  is  held  that  a  con- 
tract beyond  the  power  of  a  corporation  to  make  is  void, 
and  the  fact  that  the  corporation  has  received  the  bene- 
fits thereof  or  the  other  parties  have  acted  thereunder 
does  not  estop  the  corporation  from  raising  the  defense 
of  ultra  vires.11 


978  CORPORATIONS 

Question  641:  Can  a  corporation  acquire  shares  in  another 
corporation?  For  what  purposes  would  its  acquisition  of  stock 
be  upheld? 

■ 

(Note:  This  is  the  general  rule,  unless  the  governing  law 
gives  the  corporation  the  power.  It  is  generally  held  that  for 
the  purpose  of  protecting  its  own  credits,  it  may  acquire  shares, 
holding  such  shares  as  property,  rather  than  as  a  shareholder 
and  disposing  of  them  as  soon  as  possible  without  sacrifice.) 

Sec.  477.    Power  to  Acquire  Its  Own  Shares. 

(Note:  A  corporation  may  acquire  its  own  shares,  when  no 
fraud  on  the  law,  on  other  stockholders  or  creditors  is  thereby 
attempted.) 


CHAPTER    NINETY-TWO 
EFFECT  OF  ACTS  ULTRA  VIRES 

§  478.  The  meaning  of  ultra  vires.  §  481.  Same    subject;    benefits    re- 
§  479.  Right   of   stockholder   to  ob-  ceived  by  party  raising  de- 
ject to  act  ultra  vires.  fense;  the  strict  view. 
§  480.  Right  to  raise  defense  of  ultra  §  482.  Same  subject;  another  view. 
vires ;     act    executory    on 
both  sides. 

Sec.  478.    The  Meaning  of  Ultra  Vires. 

Case  No.  642.     National  Home  Building  &  Loan  Asso- 
ciation v.  Home  Savings  Bank  et  al.,  181  111.  35. 
(Set  out  as  Case  No.  644,  post.) 

Question  642:  What  is  meant  by  the  term  ultra  vfrest  How 
distinguished  from  the  term  intra  vires? 

(Note:  In  the  previous  chapter  we  have  inquired  into  the 
power  of  the  corporation  to  do  various  things.  The  question 
remains :  suppose  that  it  does  contract  to  do  an  act  undoubtedly 
beyond  its  power  {ultra  vires),  can  it,  on  being  sued,  set  up 
the  defense  that  the  contract  is  not  binding  on  it  because  beyond 
its  power  to  make?  Can  the  other  party,  on  being  sued,  set  up 
the  defense  that  corporation  has  no  power  to  make  the  contract 
upon  which  it  sues?  Suppose  benefits  have  been  received  under 
the  contract,  will  this  affect  the  result?) 

Sec.  479.    Right  of  Stockholder  to  Object  to  Act  Ultra 

Vires. 

(See  Case  No.  678,  post.) 

979 


980  CORPORATIONS 

Sec.  480.    Right  to  Raise  Defense  of  Ultra  Vires;  Act 
Executory  on  Both  Sides. 

Case  No.  643.    Nassau  Bank  v.  Jones  et  al.,  95  K  Y.  115. 

"  While  executed  contracts,  made  by  corporations  in 
excess  of  their  legal  powers,  have,  in  some  cases,  been 
upheld  by  the  courts,  and  parties  have  been  precluded 
from  setting  up,  as  a  defense  to  actions  brought  by  cor- 
porations, their  want  of  power  to  enter  into  such  con- 
tracts *  *  *  this  doctrine  has  never  been  applied  to 
a  mere  executory  contract  which  is  sought  to  be  made 
the  foundation  of  an  action,  either  by  or  against  such 
corporations.  It  was  said  by  Judge  Selden,  in  Tracy  v. 
Talmage  (14  N.  Y.  179),  'That  a  contract  by  a  corpora- 
tion, which  it  has  no  legal  capacity  to  make,  is  void 
and  cannot  be  enforced,  it  would  seem  difficult  to  deny. ' 
In  White  v.  Buss  (3  Cushing,  448),  Chief  Justice  Shaw 
lays  down  the  rule  as  follows :  'It  is  well  settled  by  the 
authorities  that  any  promise,  contract  or  undertaking, 
the  performance  of  which  would  tend  to  promote,  ad- 
vance or  carry  into  effect  an  object  or  purpose  which 
is  unlawful,  is  in  itself  void  and  will  not  maintain  an 
action.'  " 

Question  643:  If  a  contract  beyond  the  power  of  a  corpora- 
tion and  is  still  executory  on  both  sides  can  either  party  refuse 
to  carry  it  out? 

(Note:  A  few  courts  are  opposed  to  this  view  and  refuse 
to  allow  the  defense  to  be  set  up  even  if  the  act  is  entirely 
executory  on  both  sides.  Thus  in  Harris  v.  Independence  Gas 
Co.,  76  Kan.  750,  the  Court  says:  "The  Court  is  convinced  of 
the  soundness  of  the  view,  that  in  the  absence  of  special  circum- 
stances affecting  the  matter,  neither  party  to  even  an  executory 
contract  should  be  allowed  to  defeat  its  enforcement  by  the 
plea  of  ultra  vires."  But  this  is  opposed  to  the  weight  of 
authority. ) 

Sec.  481.    Same  Subject;  Benefits  Received  by  Party 
Raising  Defense;  the  Strict  View. 

Case  No.  644.  National  Home  Building  Association  v. 
Bank,  181  HI.  35. 


DEFENSE  OF  ULTRA  VIRES  981 

Mr.  Chief  Justice  Cabtwbight:  "It  is  also  argued 
that  the  building  and. loan  association  is  estopped  to 
raise  the  question  whether  the  contract  was  ultra  vires 
because  it  has  received  the  benefit  of  the  contract  by  the 
conveyance  of  property  to  it.  That  depends,  as  we  think, 
upon  the  sense  in  which  the  term  ultra  vires  is  used.  It 
has  been  applied  indiscriminately  to  different  states  of 
fact  in  such  a  way  as  to  cause  considerable  confusion. 
When  used  as  applicable  to  some  conditions,  it  has  been 
frequently  said  that  a  corporation  is  estopped  to  make 
such  a  defense  where  it  has  received  the  benefit  of  the 
contract.  For  example,  the  term  has  been  applied  to 
acts  of  directors  or  officers  which  are  outside  and  be- 
yond the  scope  of  their  authority,  and  therefore  are  in- 
vasions of  the  rights  of  stockholders,  but  which  are 
within  the  powers  of  the  corporation.  In  such  a  case  the 
act  may  become  binding  by  ratification,  consent  and 
acquiescence,  or  by  the  corporation  receiving  the  benefit 
of  the  contract.  Again,  it  has  been  applied  to  cases  where 
an  act  was  within  the  authority  of  the  corporation  for 
some  purposes  or  under  some  circumstances,  and  where 
one  dealing  in  good  faith  with  the  corporation,  had  a 
right  to  assume  the  existence  of  the  conditions  which 
would  authorize  the  act.  Where  an  act  is  not  ultra  vires 
for  want  of  power  in  the  corporation  but  for  want  of 
power  in  the  agent  or  officer,  or  because  of  the  disregard 
of  formalities  which  the  law  requires  to  be  observed, 
or  is  an  improper  use  of  one  of  the  enumerated  powers, 
it  may  be  valid  as  to  third  persons.  In  the  more  proper 
and  legitimate  use  of  the  term,  it  applies  only  to  acts 
which  are  beyond  the  purpose  of  the  corporation,  which 
could  not  be  sanctioned  by  the  stockholders.  There 
would,  of  course,  be  no  power  to  confirm  or  ratify  a  con- 
tract of  that  kind,  because  the  power  to  enter  into  it  is 
absolutely  wanting.  If  there  is  no  power  to  make  the 
contract  there  can  be  no  power  to  ratify  it,  and  it  would 
seem  clear  that  the  opposite  party  could  not  take  away 
the  incapacity  and  give  the  contract  vitality  by  doing 
something  under  it.    It  would  be  contradictory  to  say 


982  CORPORATIONS 

that  a  contract  is  void  for  an  absolute  want  of  power  to 
make  it,  and  yet  it  may  become  legal  and  valid  as  a  con- 
tract, by  way  of  estoppel,  through  some  other  act  of  the 
party  under  such  incapacity,  or  some  act  of  the  other 
party  chargeable  by  law  with  notice  of  the  want  of 
power. 

1 '  The  powers  delegated  by  the  state  to  the  corporation 
are  matters  of  public  law,  of  which  no  one  can  plead 
ignorance.  A  party  dealing  with  a  corporation  having 
limited  and  delegated  powers  conferred  by  law  is  charge- 
able with  notice  of  them  and  their  limitations,  and  can 
not  plead  ignorance  in  avoidance  of  the  defense.' ' 

Question  644:  What  is  the  doctrine  of  this  case?  Give  the 
reasons  supporting  it. 

(Note :  In  De  La  Vergne  Co.  v.  German  Sav.  Inst,  175  U.  S. 
40,  at  page  59,  the  Court  says :  ' '  The  doctrine  that  no  recovery 
can  be  had  upon  the  contract  is  based  upon  the  theory  that  it 
is  for  the  interest  of  the  public  that  corporations  should  not 
transcend  the  limits  of  their  charters;  that  the  property  of 
stockholders  should  not  be  put  to  the  risk  of  engagements  which 
they  did  not  undertake;  that  if  the  contract  be  prohibited  by 
statute  every  one  dealing  with  the  corporation  is  bound  to 
take  notice  of  the  restrictions  in  its  charter,  whether  such  char- 
ter be  a  private  act  or  a  general  law  under  which  corporations 
of  this  class  are  organized. ' ') 

Case  No.  645.    Converse  v.  Emerson  &  Co. 
(Set  out  as  Case  No.  641,  supra.) 

Question  645:  What  was  the  argument  made  in  this  case? 
Did  it  prevail? 

Sec.  482.    Same  Subject;  Another  View. 

Case  No.  646.  Denver  Fire  Ins.  Co.  v.  McClelland,  9 
Colo.  11. 

Facts:  The  Denver  Fire  Ins.  Co.  is  sued  on  a  policy 
of  insurance  by  which  it  purported  to  insure  McClelland 


DEFENSE  OF  ULTRA  VIRES  983 

against  loss  of  certain  crops  by  hail.  McClelland  paid 
$3  and  gave  his  promissory  note  for  $58.03  as  the  pre- 
mium. A  loss  by  hail  occurred,  and  defendant  is  sued 
and  states  that  it  has  no  power  to  issue  the  kind  of  insur- 
ance in  question,  and  that  therefore  the  policy  is  void, 
and  for  that  reason  it  is  not  responsible  for  the  loss; 
and  offers  to  return  the  premium  paid  to  it  by  plaintiff. 
Point  Involved:  Whether  the  corporation  is  estopped 
by  the  receipt  of  benefits  to  plead  ultra  vires  when  sued 
on  a  contract  it  has  no  charter  power  to  make. 

Beck,  C.  J.,  and  Helm,  J. :  "  Private  corporations  are 
creatures  of  statute,  and  derive  their  powers  solely  there- 
from. Upon  weighty  considerations  of  public  policy,  and 
of  private  equity  as  well,  the  principle  has  been  uni- 
versally recognized  that  the  charters  or  general  laws 
through  which  these  corporations  derive  their  existence 
absolutely  control  their  action ;  that  a  contract  made  or 
an  act  done  by  them  which  is  not  in  any  manner  author- 
ized by  some  express  provision  of  the  charter  or  law  of 
incorporation,  or  which  may  not  be  clearly  implied  there- 
from is  ultra  vires;  and  that  such  usurpation  of  power 
may  be  relied  upon  as  a  complete  defense  to  a  suit  grow- 
ing out  of  the  unauthorized  act  or  contract. 

"But  for  the  purpose  of  avoiding  the  infliction  of 
manifest  injustice  in  given  cases,  many  courts  of  the 
highest  respectability  have  seen  fit  to  recognize  an  excep- 
tion to  the  foregoing  doctrine.  This  exception  when 
admitted,  is  always  based  upon  principles  largely  anal- 
ogous to  those  supporting  equitable  estoppels.  The  de- 
cisions recognizing  it  hold  that  where  a  corporation 
receives  and  retains  the  full  benefit  of  a  contract,  and  a 
failure  to  perform  on  its  side  would  result  in  palpable 
injustice  to  the  other  contracting  party,  it  is  estopped 
from  escaping  liability  thereunder  through  a  plea  of 
ultra  vires. 

"We  are  inclined  to  the  opinion  that  cases  sometimes 
arise  wherein  this  exception,  properly  understood  and 
limited,  should  be  held  applicable.    If  a  private  corpora- 


984  CORPORATIONS 

tion  has  accepted  and  retained  the  full  benefits  of  a  con- 
tract which  it  had  no  power  to  make,  the  same  having 
been  performed  by  the  other  party  thereto;  and  if  the 
transaction  is  of  such  a  nature  that  the  party  thus  per- 
forming will  suffer  manifest  injustice  and  hardship  un- 
less permitted  to  maintain  his  action  directly  upon  the 
contract,  no  other  adequate  relief  being  at  his  com- 
mand, we  think  the  defense  of  ultra  vires  may  be  disal- 
lowed. This,  however,  does  not  do  away  with  the  ob- 
jectionable character  of  the  unauthorized  contract.  It 
admits  the  legal  wrong  committed  by  the  usurpation  of 
power,  but  denies  the  equitable  right  of  the  corporation 
to  profit  through  such  wrong  at  the  expense  of  parties 
contracting  with  it ;  the  corporation  having  received  and 
retained  the  benefit  of  the  contract,  is  denied  the  privi- 
lege of  invoking  the  illegality  of  its  act,  and  thus  avoid- 
ing consequences  naturally  flowing  therefrom. 

"The  circumstances  attending  and  surrounding  the 
transaction  now  before  us,  in  our*  judgment,  render  this 
an  appropriate  case  for  the  application  of  the  foregoing 
equitable  doctrine.  For  this  reason  we  concur  in  the  con- 
clusion arrived  at  by  Mr.  Justice  Stone,  who  writes  the 
principal  opinion." 

Question  646:    State  the  doctrine  of  this  case. 


PART    XXVII 
STOCK  AND  STOCKHOLDERS 

Chapter  Ninety-three.  Capital  Stock,  Shares  and  Cer- 
tificates. 

Chapter  Ninety-four.       Subscription  to  Stock. 

Chapter  Ninety-five.        Liability  of  Shareholder. 

Chapter  Ninety-six.  Transfer  of  Shares.. 

Chapter  Ninety-seven.     Various  Rights  of  Shareholders 

in  Going  Concern. 


CHAPTER    NINETY-THREE 
CAPITAL  STOCK,  SHARES  AND  CERTIFICATES 

§  483.  Capital  stock  defined.  §  485.  Certificate. 

§484.  Division    into    shares;    kinds       §486.  Increase  and  decrease  of  cap- 
of  stock.  ital  stock. 

Sec.  483.    Capital  Stock  Defined. 

Case  No.  647.  State  v.  Morristown  Fire  Ass'n,  23  N. 
J.  L.  195. 

Point  Involved:  The  definition  of  capital  stock;  its 
distinction  from  the  property  of  the  corporation. 

Chief  Justice  Green:  "The  phrase  'capital  stock'  as 
employed  in  acts  of  incorporation,  is  never,  that  I  am 
aware,  used  to  indicate  the  value  of  the  property  of  the 
company.  It  is  very  generally,  if  not  universally,  used 
to  designate  the  amount  of  capital  to  be  contributed  by 

985 


986  CORPORATIONS 

the  stockholders  for  the  purposes  of  the  corporation. 
The  amount  thus  contributed  constitutes  the  'capital 
stock'  of  the  company.  The  value  of  the  stock  may  be 
greatly  increased  by  surplus  profits  or  be  diminished  by 
losses,  but  the  amount  of  the  capital  stock  remains  the 
same. 

1 '  The  funds  of  the  company  may  fluctuate.  Its  capital 
stock  remains  invariable,  save  by  legislative  enactment. 
This  distinction  between  the  value  of  the  property  of 
incorporated  companies  and  their  capital  stock  is  per- 
fectly familiar. ' ' 

Question  647:  Define  capital  stock;  how  does  it  differ  from 
the  property  of  the  corporation? 

Sec.  484.    Division  Into  Shares;  Kinds  of  Shares. 

Case  No.  648.  Storrow  v.  Texas  Consol.  Comp.  &  Mfg. 
Asso.,  87  Fed.  612. 

Swayne,  D.  J.:    "•     *     * 

"A  share  of  stock  has  been  defined  to  be  a  right  which 
its  owner  has  in  the  management,  profits,  and  ultimate 
assets  of  the  corporation ;  but  he  has  no  legal  title  to  the 
profits  or  property  of  the  corporation  until  a  dividend 
is  declared,  and  a  division  made  on  the  dissolution  of  the 
corporation.  Common  stock  differs  in  many  ways  from 
what  is  termed  'preferred  stock. '  The  owner  of  the  for- 
mer is  entitled  to  an  equal  pro  rata  division  of  the 
profits,  if  there  be  any,  but  has  no  advantage  of  any  other 
shareholder  or  class  of  shareholders  of  common  stock. 
Preferred  stock,  on  the  other  hand,  generally  entitles  its 
owner  to  dividends  out  of  the  net  profits  before  and  in 
preference  of  the  holders  of  the  common  stock.  Gen- 
erally, the  rights,  powers,  and  privileges  of  preferred 
stockholders  depend  upon  the  terms  upon  which  it  is 
issued;  preferred  stock  making  a  multiplicity  of  forms, 
according  to  the  desire  or  ingenuity  of  the  stockholders, 
and  the  necessity  of  the  corporation  itself.    The  percent- 


CAPITAL  STOCK  987 

age  of  preferred  stock  dividends  is  always  fixed  before 
it  is  issued.  It  is  a  matter  of  contract,  and  may  be  made 
cumulative,  as  it  was  in  this  case.  Every  holder  of  pre- 
ferred stock,  by  its  terms,  was  guaranteed  a  dividend  of 
6  per  cent  per  annum  thereon  to  be  paid  out  of  the  net 
earnings  of  the  association,  which  are  properly  the  gross 
receipts,  less  the  expenses  of  operation,  interest  on  debts, 
and  other  liabilities  payable  first.  The  rest  is  the  net 
profits  out  of  which  the  shareholders  of  preferred  stock 
should  be  paid  the  6  per  cent  dividend.  While  it  was 
largely  a  matter  of  discretion  with  the  board  of  directors 
as  to  what  use  they  would  put  the  profits  to,  whether  to 
declare  a  dividend  or  use  them  in  the  business  of  the 
company,  there  is  a  limit  to  this  discretion ;  and  the  courts 
will  not  allow  the  directors  to  use  their  powers  oppress- 
ively by  refusing  to  declare  a  dividend  while  the  net 
profits  and  character  of  the  business  clearly  warrant  it. 
This  rule  is  applicable  not  only  to  the  holders  of  the  com- 
mon stock,  but  also  to  the  preferred  stock,  which  is  en- 
titled, as  a  matter  of  right,  to  have  a  dividend  declared 
out  of  the  net  profits,  if  it  can  be  shown  that  the  directors 
did  not  exercise  reasonable  discretion  in  withholding  the 
same.  By  the  final  dissolution  of  the  corporation,  the 
holders  of  the  preferred  stock  would  be'  entitled  to  re- 
ceive only  the  full  face-value  thereof,  after  which  the 
balance  of  the  property  would  be  equally  divided  among 
the  common  stockholders." 

Question  648:     (1.)     Define  a  share  of  stock. 

(2.)     How  does  common  differ  from  preferred  stock? 

Sec.  485.    Certificates. 

Case  No.  649.  Chester  Glass  Co.  v.  Dewey,  16  Mass.  94, 
Facts:  Suit  against  Dewey  on  his  stock  subscription 
and  an  assessment  made  on  his  share.  Denial  by  de- 
fendant that  he  is  a  stockholder,  for  several  reasons,  one 
of  which  is,  that  he  was  never  issued  a  certificate  of  stock. 
Point  Involved:  Whether  a  stock  certificate  is  essen- 
tial to  constitute  one  stockholder. 


988  CORPORATIONS 

Parker,  C.  J. :  "*  *  *  It  is  insisted,  secondly, 
that  he  cannot  be  a  member,  without  a  certificate  of  his 
share;  it  being  provided  by  the  general  act  upon  this 
subject  that  the  stock  shall  be  divided  into  shares,  and 
that  certificates  shall  issue  to  the  stockholders.  But  it 
was  not  essential  to  the  existence  of  the  corporation,  that 
certificates  should  have  been  issued.  The  corporation 
might  be  compelled,  if  there  were  a  court  of  chancery, 
to  give  certificates ;  but  still  for  want  of  them  the  stock- 
holders would  not  lose  their  rights.  The  defendant  never 
demanded  a  certificate.  If  he  had  and  it  had  been  re- 
fused, perhaps  he  might  have  declined  being  a  member. 
But  a  certificate  was,  in  fact,  offered  to  him  before  his 
action  was  brought." 

Question  649:  Can  one  be  a  stockholder  in  a  corporation 
without  a  certificate?  Is  he  entitled  to  a  certificate?  How 
could  he  compel  its  issuance? 

(Note :  On  the  question  of  transfer  of  stock,  forged  and 
stolen  certificates,  see  post,  in  this  part.) 

Sec.  486.    Increase  and  Decrease  of  Capital  Stock. 

(Note :  Change  in  amount  of  capital  stock  either  by  increase 
or  decrease  can  be  effected  only  by  complying  with  the  statute 
authorizing  such  change.  There  is  no  power  in  the  stockholders 
or  directors  to  change  the  amount  of  capital  stock,  except  in 
compliance  with  the  general  law  whereby  such  change  becomes 
a  matter  of  public  record.) 


CHAPTER    NINETY-FOUR 
SUBSCRIPTION  TO  STOCK 

§  487.  Subscriptions  upon  condition.      §  488.  Subscriptions       secured      by- 
fraud. 

Sec.  487;    Subscriptions  Upon  Condition. 

Case  No.  650.  Minneapolis  Threshing  Machine  Co.  v. 
Davis,  40  Minn.  110. 

Facts:  Suit  brought  on  a  contract  of  subscription  for 
stock.  Defendant  gave  his  subscription  in  writing  to  a 
promoter  of  the  company,  on  the  condition,  orally  stated, 
that  the  promoter  should  make  no  use  of  it  unless  certain 
other  parties  subscribed,  who  did  not  subscribe.  The 
other  subscribers  and  the  corporation  was  unaware  of 
this  condition.  The  promoter  violated  the  condition  and 
turned  in  the  subscription.  Defendant  never  took  any 
other  part  in  the  organization  of  the  company  except  as 
stated. 

Mitchell,  J. :     ' '  *     *     * 

*  'Under  the  elementary  rule  of  evidence  that  a  written 
agreement  cannot  be  varied  or  added  to  by  parol,  it  is 
not  competent  for  a  subscriber  to  stock  to  allege  that 
he  is  but  a  conditional  subscriber.  The  condition  must 
be  inserted  in  the  writing  to  be  effectual.  This  rule  ap- 
plies with  special  force  to  a  case  like  the  present,  where 
to  allow  the  defendant  now  to  set  up  a  secret  parol 
arrangement  by  which  he  may  be  released,  while  his 
fellow-subscribers  continue  to  be  bound,  would  be  a  fraud, 
not  only  upon  them,  but  upon  the  corporation  which  has 

989 


990  CORPORATIONS 

been  organized  on  the  faith  of  these  subscriptions  and 
upon  its  creditors.  The  defendant  of  course  does  not 
attempt  to  controvert  so  elementary  a  rule  as  the  one 
suggested,  but  contends  that  the  effect  of  this  evidence 
was  not  to  vary  or  contradict  the  terms  of  the  writing, 
but  to  prove  that  there  was  never  any  delivery  of  it, 
and  hence  that  there  never  was  any  contract  at  all,  de- 
livery being  prerequisite  to  the  very  existence  of  a  con- 
tract. His  claim  is  that  the  subscription  paper  was 
given  to  and  received  by  Janney  merely  as  an  escrow,  or 
as  in  the  nature  of  an  escrow,  only  to  be  delivered  or 
used  upon  the  performance  of  certain  conditions  preced- 
ent, and  that  until  they  were  performed  there  could  be 
no  valid  delivery. 

"In  determining  this  question  it  becomes  important 
to  consider  the  nature  of  a.  subscription  to  the  stock  of  a 
proposed  corporation,  and  the  relation  of  the  different 
parties  to  each  other,  under  the  facts  of  this  case.  A 
subscription  by  a  number  of  persons  to  the  stock  of  a 
corporation  to  be  thereafter  formed  by  them  has  in  law 
a  double  character:  First,  it  is  a  contract  between  the 
subscribers  themselves  to  become  stockholders  without 
further  act  on  their  part  immediately  upon  the  forma- 
tion of  the  corporation.  As  such  a  contract  it  is  binding 
and  irrevocable  from  the  date  of  the  subscription  (at 
least  in  the  absence  of  fraud  or  mistake),  unless  can- 
celled by  consent  of  all  the  subscribers  before  accept- 
ance by  the  corporation.  Second,  it  is  also  in  the  nature 
of  a  continuing  offer  to  the  proposed  corporation,  which, 
upon  acceptance  by  it  after  its  formation,  becomes  as  to 
each  subscriber  a  contract  between  him  and  the  corpora- 
tion. 1  Mor.  Priv.  Corp.,  Sec.  47  et  seq.;  Red  Wing 
Hotel  Co.  v.  Frederich,  26  Minn.  112  (1N.W.  Rep.  827). 
Janney,  the  promoter  who  solicited  and  obtained  the  sub- 
scriptions, occupied  the  position  of  agent  for  the  subscrib- 
ers as  a  body,  to  hold  the  subscriptions  until  the  cor- 
poration was  formed  in  accordance  with  the  terms  and 
conditions  expressed  in  the  agreement  and  then  turn  it 
over  to  the  company  without  any  further  act  of  delivery 


SUBSCRIPTION  TO  STOCK  991 

on  part  of  the  subscribers.  The  corporation  would  then 
become  the  party  to  enforce  the  rights  of  the  whole  body 
of  subscribers.  It  follows,  then,  that  considering  the 
subscription  as  a  contract  between  the  subscribers,  a  de- 
livery to  Janney  by  a  subscriber  was  a  complete  and  valid 
delivery,  so  that  his  subscription  became  eo  instanti  a 
binding  contract.  The  case  stands  precisely  as  a  case 
where  a  contract  is  delivered  by  the  obligor  to  the  obligee. 
It  cannot  therefore  be  treated  as  a  case  where  a  writing 
has  been  delivered  to  a  third  party  in  escrow. 

"This  subscription  agreement  was  not  intended  to  be 
the  sole  contract  of  defendant.  It  was  designed  to  be 
also  signed  by  other  parties,  and  from  its  very  nature 
defendant  must  have  known  this.  Each  succeeding  sub- 
scriber executed  it  more  or  less  upon  the  faith  of  the 
subscriptions  of  others  preceding  his.  The  paper  pur- 
ports on  its  face  to  be  a  completed  contract,  containing 
all  the  terms  and  conditions  which  the  subscribers  in- 
tended it  should.  When  this  agreement  was  presented  to 
others  for  subscription,  defendant  had  not  only  signed 
it  in  this  form,  but  he  had  also  done  what,  under  the 
facts,  constituted,  to  all  outward  appearances  at  least,  a 
complete  and  valid  delivery.  He  had  placed  it  in  the 
proper  channel  according  to  the  ordinary  and  usual 
course  of  procedure  for  passing  it  over  to  the  corpora- 
tion when  organized,  and  clothed  Janney  with  all  the 
indicia  of  authority  to  hold  and  use  it  for  that  pur- 
pose without  any  other  or  further  act  on  his  part,  un- 
trammelled by  any  condition  other  than  those  expressed 
in  the  writing.  In  reliance  upon  this,  others  have  not 
only  subscribed  to  the  stock,  but  have  since  paid  in  a 
large  share  of  it.  The  corporation  has  been  organized 
and  engaged  in  business,  expending  large  sums  of  money, 
and  contracting  large  liabilities,  all  upon  the  strength 
of  these  subscriptions  to  its  stock,  and  in  entire  ignor- 
ance of  this  secret  oral  condition  which  defendant  now 
claims  to  have  attached  to  the  delivery.  To  permit  de- 
fendant to  relieve  himself  from  liability  on  any  such 
ground,  under  this  state  of  facts,  would  be  a  fraud  on 


992  CORPORATIONS 

others  who  have  subscribed  and  paid  for  stock,  upon  the 
corporation  which  has  been  organized  and  incurred  lia- 
bilities in  reliance  upon  the  subscriptions,  and  on  credit- 
ors who  have  trusted  it.  The  familiar  principle  of 
equitable  estoppel  by  conduct  applies,  viz.:  Where  a 
person,  by  his  words  or  conduct,  wilfully  causes  another 
to  believe  in  the  existence  of  a  certain  state  of  facts,  and 
induces  him  to  act  on  that  belief  so  as  to  alter  his  own 
previous  condition,  he  is  estopped  from  denying  the 
truth  of  such  facts  to  the  prejudice  of  the  other. ' ' 

Question  650:  What  was  the  defense  in  this  case?  "Was  it 
allowed  or  not?    Give  the  reasons. 

Sec.  488.    Fraud  in  Securing  Subscriptions. 

Case  No.  651.     Morgan  v.  Skiddy,  62  N.  Y.  319. 
(Set  out  as  case  No.  687,  post.) 

Case  No.  652.  Gress  v.  Knight,  135  Ga.  60,  31  L.  R.  A. 
N.  S.  900. 

Facts:  November  23,  1907,  the  Bank  of  Wayland 
made  an  assignment  for  the  benefit  of  creditors,  and  re- 
ceivers were  appointed.  Certain  stockholders  file  peti- 
tions alleging  that  they  were  induced  to  subscribe  for 
stock  through  fraudulent  representations,  and  asking 
for  rescission  of  the  stock  subscription. 

Point  Involved:  Whether  a  stockholder  can  be  re- 
lieved of  his  liability  as  a  stockholder  on  the  ground  of 
fraud,  where  since  his  subscription  the  rights  of  cred- 
itors have  intervened  and  the  corporation  has  become 
insolvent. 

Lumpkin,  J.,  delivered  the  opinion  of  the  Court:  "In 
England  it  is  settled  that  after  the  commencement  of 
winding  up  proceedings  against  a  corporation,  an  appli- 
cation to  be  relieved  from  liability  as  a  shareholder 
on  the  ground  of  fraud  practiced  on  him  by  agents  of 
the  company  in  procuring  the  subscription  comes  too 
late.     *     *     * 


SUBSCRIPTION  TO  STOCK  993 

u*  *  *  j^  stockholder  occupies  a  three-fold  rela- 
tion: First,  to  the  corporation  itself;  second,  to  other 
stockholders ;  and,  third,  to  creditors  of  the  corporation. 
Fraud  does  not  render  a  contract  absolutely  void,  but 
voidable.  It  remains  valid  until  repudiated  or  avoided. 
As  between  a  stockholder  and  the  corporation,  unless 
special  circumstances  alter  the  case,  the  general  rule 
that  contracts  obtained  by  fraud  may  be  avoided  by  the 
party  defrauded  applies  to  a  stock  subscription  induced 
by  the  fraud  of  the  company  through  its  authorized 
agents.  So,  also,  where  only  the  rights  of  other  share- 
holders are  affected,  the  company  being  solvent  and  'a 
going  concern.  >  *  *  *  But  where  the  rights  of  cred- 
itors are  involved,  the  question  is  one  of  greater  diffi- 
culty. Some  American  decisions  have  announced  in 
general  terms  the  rule  laid  down  by  the  English  courts ; 
but  in  most  of  them  additional  circumstances  existed, 
such  as  receiving  benefits  after  knowledge  or  notice  of 
the  fraud,  acts  done,  after  notice  or  knowledge,  incon- 
sistent with  a  disaffirmance,  laches,  estoppel,  the  inter- 
vening of  rights  of  innocent  third  parties,  or  the  like. 
Thus,  in  Chubb  v.  Upton,  95  U.  S.  665,  667,  24  L.  Ed. 
523,  524,  Mr.  Justice  Hunt  said:  'It  has  been  several 
thnes  adjudged  in  this  court  that  in  an  action  by  such 
assignee  to  recover  unpaid  subscriptions  upon  stock  in 
such  an  organization,  the  defense  of  false  and  fraudu- 
lent representations  inducing  such  subscription  cannot 
be  set  up,  especially  when  the  subscriber  has  not  been 
vigilant  in  discovering  such  fraud,  and  in  repudiating 
his  contract.*  It  cannot  be  easily  determined  just  how 
far  a  rule  laid  down  in  general  terms  would  be  applied 
in  the  absence  of  the  facts  added  to  it  under  an  'espe- 
cially.' In  the  case  just  cited,  Chubb  was  sued  by  an 
assignee  in  bankruptcy  of  the  company.  He  sought  to 
set  up  irregularities  and  informalities  in  the  increase  of 
capital  stock  to  which  he  became  a  subscriber,  and  also 
fraud  in  the  procurement  of  his  subscription.  It  ap- 
peared that  he  was  president  of  a  branch  of  the  com- 
pany, took  part  in  its  meetings,  paid  money  on  his  stock, 


994  CORPORATIONS 

and  at  one  time  gave  a  proxy  to  another  person  to 
attend  and  vote  at  a  stockholders'  meeting  at  the  main 
office.  He  made  no  effort  to  cancel  his  subscription. 
The  company  incurred  liabilities  and  was  adjudicated 
a  bankrupt  about  fifteen  months  after  his  subscription. 
Clearly  he  should  not  have  been  relieved.  In  Upton  v. 
Tribilcock,  91  U.  S.  45,  23  L.  Ed.  203,  the  shareholder 
had  delayed  repudiating  his  subscription  for  three  years 
and,  until  an  assignee  in  bankruptcy  had  been  appointed, 
and  there  were  other  circumstances  showing  laches.  Dis- 
cussions of  the  subject  will  be  found  in  2  Thomp.  Corp. 
Sees.  1440,  1449;  Upton  v.  Englehart,  3  Dill.  496,  Fed. 
Cas.  No.  16,800;  Farrar  v.  Walker,  3  Dill.  506,  Fed.  Cas. 
No.  4,679  (reported  unofficially) ;  Newton  Nat.  Bank  v. 
Newbegin,  33  L.  E.  A.  727,  and  note  (20  C.  C.  A.  339, 
40  U.  S.  App.  1,  74  Fed.  135) ;  Parker  v.  Thomas,  19 
Ind.  213,  81  Am.  Dec.  385,  401,  note.  A  number  of 
American  decisions  are  to  the  effect  that  where  one  sub- 
scribes to  stock  and  the  company  proceeds  to  do  busi- 
ness, incurs  liabilities,  and  later  fails  and  is  adjudged 
a  bankrupt,  or  its  assets  are  placed  in  the  hands  of  a 
receiver  for  the  purpose  of  winding  it  up,  no  rescission 
will  be  allowed,  unless  under  exceptional  circumstances. 
Thomp.  Corp.  Sec.  1450.     *     *     * 

"When  a  person  becomes  a  stockholder  of  a  corpora- 
tion, he  becomes  a  part  of  it.  Its  agents  are,  in  a  sense, 
his  agents.  They  go  out  and  deal  with  the  public.  If 
through  their  dealings  debts  are  incurred,  assuming 
both  the  stockholder  and  the  creditor  to  be  innocent  and 
that  one  must  suffer,  the  former,  who  put  it  in  the  power 
of  the  agents  to  do  the  wrong,  should  suffer  rather  than 
third  parties  who  dealt  with  such  agents.  Civ.  Code, 
1895,  Sec.  3940.  As  to  creditors  whose  claims  arose  after 
the  stockholders  became  such,  their  rights  are  superior 
to  any  right  of  rescission.  The  status  of  a  stockholder 
relative  to  creditors  who  became  such  after  he  took  the 
stock  is  not  in  all  respects  identical  with  that  relative  to 
antecedent  creditors.  As  to  creditors  whose  debts  were 
created  before  he  took  the  stock,  questions  of  laches,  acts 


SUBSCRIPTION  TO  STOCK  995 

inconsistent  with  rescission,  estoppel,  etc.,  might  arise. 
The  new  stockholder  may  have  permitted  the  increase 
of  indebtedness  and  the  lessening  of  the  assets  with 
which  to  pay.  *  *  *  "When  the  facts  are  shown,  it 
can  be  made  to  appear  whether  a  fraud  was  really  per- 
petrated on  each  of  the  interveners;  whether  there  was 
any  lack  of  diligence  in  discovering  such  fraud,  or  unrea- 
sonable delay  in  seeking  relief  after  its  discovery, 
whether  there  was  any  active  participation  by  the  inter- 
veners in  the  management  of  the  corporation,  or  whether 
debts  had  been  incurred  after  the  intervener  became  a 
stockholder,  which  either  gave  corporate  creditors 
superior  equitable  rights  or  estopped  the  intervener 
from  denying  that  he  was  a  stockholder,  and  generally 
whether  his  conduct  was  such  as  to  prevent  relief.' ' 

Question  652:  If  the  company  becomes  insolvent,  does  this 
intervene  to  prevent  the  creditor  from  setting  up  the  fraud  by 
which  he  was  induced  to  subscribe?    Why? 


CHAPTER    NINETY-FIVE 
LIABILITY  OF  SHAREHOLDERS 

§  489.  Liability  to  corporation.  §  492.  Payment   as   between   corpo- 
§  490.  The  "trust  fund  doctrine."  ration  and  shareholder. 

§  491.  What     constitutes     payment  §  493.  Forfeiture  of  stock  for  non- 
for  stock.  payment. 

Sec.  489.    Liability  to  Corporation. 

(Note:  The  liability  to  the  corporation  is  governed  by  the 
contract  of  subscription.  On  the  liability  of  a  transferee  of 
issued  stock  to  pay  the  unpaid  subscription  thereon,  see  Case 
No.  657  and  on  the  question  whether  the  corporation  can  question 
the  sufficiency  of  the  payment  which  it  has  received  from  the 
stockholder,  see  Sec.  No.  492,  post,  this  chapter*) 

Sec.  490.    The  "Trust  Fund"  Doctrine. 

Case  No.  653.  Wood  v.  Dummer,  3  Mason  (U.  S.  Cir. 
Ct.)  108. 

Facts:  Plaintiffs  bring  their  bill  in  equity,  as  holders 
of  banknotes  of  the  Hollowell  and  Augusta  Bank, 
against  defendants  as  stockholders  of  the  same  bank  for 
payment  of  such  notes  on  the  ground  of  a  fraudulent 
division  of  the  capital  stock.  The  defendants  denied 
the  fraud,  but  admitted  the  division.  It  appeared  that 
the  bank  divided  three-fourths  of  its  capital  stock  among 
its  stockholders  without  providing  funds  to  pay  for  its 
outstanding  banknotes. 

Story,  J.:    "*     *     * 

"It  appears  to  me  very  clear  upon  general  principles, 
as  well  as  the  legislative  intention,  that  the  capital  stock 

996* 


SHAREHOLDERS'  LIABILITY  99? 

of  banks  is  to  be  deemed  a  pledge  or  trust  fund,  for  the 
payment  of  the  debts  contracted  by  the  bank.  The  pub- 
lic, as  well  as  the  legislature,  have  always  supposed  this 
to  be  a  fund  appropriated  for  such  purpose.  The  indi- 
vidual stockholders  are  not  liable  for  the  debts  of  the 
bank  in  their  private  capacities.  The  charter  relieves 
them  from  personal  responsibility  and  substitutes  the 
capital  stock  in  its  stead.  Credit  is  universally  given 
to  this  fund  by  the  public  as  the  only  means  of  repay- 
ment. During  the  existence  of  the  corporation  it  is  the 
sole  property  of  the  corporation  and  can  be  applied  only 
to  its  charter,  that  is,  as  a  fund  for  the  payment  of  its 
debts,  upon  the  security  of  which  it  may  discount  and 
circulate  notes.  Why,  otherwise,  is  any  capital  stock 
required  by  our  charters?  If  the  stock  may,  the  next 
day  after  it  is  paid  in,  be  withdrawn  by  the  stockholders 
without  payment  of  the  debts  of  the  corporation,  why 
is  its  amount  so  studiously  provided  for  and  its  payment 
by  the  stockholders  so  diligently  required?  To  me  this 
point  appears  so  plain  upon  principles  of  law,  as  well 
as  common  sense,  that  I  cannot  be  brought  into  any 
doubt  that  the  charters  of  our  banks  make  the  capital 
stock  a  trust  fund  for  the  payment  of  all  the  debts  of 
the  corporation.     *     *     *" 

Question  653:  What  is  the  "trust  fund"  doctrine  as  an- 
nounced by  this  case  ? 

Case  No.  654.  Bedford  E.  R.  Co.  v.  Bowser,  48  Pa. 
St.  29. 

Facts:  Suit  by  the  company  to  enforce  Bowser's  sub- 
scription. Defense,  among  other  things,  that  the  board 
of  directors  released  and  cancelled  the  subscription. 

Point  Involved:  Whether  the  board  of  directors  have 
power  to  release  a  subscriber  and  thus  impair  the  capital 
of  the  company. 

Strong,  J.:  "*  *  *  The  directors  of  the  company 
then  in  office  were  its  agents  with  limited  powers,  the 
extent  of  which  the  defendant  was  bound  to  know.  Their 


998  CORPORATIONS 

duties  were  to  conduct  its  affairs  to  the  furtherance  of 
the  ends  for  which  the  company  was  created.  They  had 
no  power  to  destroy  it,  to  give  away  its  funds,  or  to 
deprive  it  of  any  of  its  means  to  accomplish  the  full  pur- 
pose for  which  it  was  chartered.  The  creditors  were 
not  the  only  persons  who  had  interests  and  rights  at 
stake.  The  stockholders  who  had  paid  their  subscrip- 
tions, or  bought  their  stock,  and  the  commonwealth  by 
whom  the  charter  had  been  granted,  were  at  least 
equally  interested.  The  railroad  was  unfinished,  and 
the  commonwealth  had  a  right  to  demand  that  all  re- 
sources, rights  and  credits  of  the  company  should  be 
devoted  to  its  completion.  *  *  *  Directors  of  a  rail- 
road company  are  trustees  for  all  stockholders,  and  in 
a  very  just  sense  for  the  commonwealth.  It  is  an  abuse 
of  their  trust,  wholly  unauthorized,  and  at  war  with  the 
design  of  the  charter  to  single  out  some  of  the  stock 

subscribers  and  release  them  from  their  liability. 
#     #     #  t> 

Question  654:  A  corporation  adopted  a  by-law  that  any 
member  could,  on  giving  30  days'  notice,  withdraw,  and  F,  a 
stockholder,  withdrew  in  accordance  with  this  by-law  and  with 
the  assent  of  the  officers.  The  corporation  was  then  solvent. 
Afterwards  becoming  insolvent,  a  receiver  was  appointed  and 
he  sued  F.  Could  he  recover?  (Farnsworth,  Receiver,  v.  Rob- 
bins,  36  Minn.  369.) 

Case  No.  655.    Edwards  v.  Schillinger,  245  HI.  231. 

Facts:  "The  defendant  in  error,  John  B.  Edwards, 
trustee  in  bankruptcy  of  Schillinger  Bros.  Asphalt  Com- 
pany, a  corporation,  filed  his  bill  in  the  Superior  Court 
of  Cook  County  against  the  plaintiffs  in  error,  Gustav 
A.  Schillinger,  and  A.  C.  Gumbiner,  stockholders  of  the 
corporation,  to  set  aside  a  dividend,  declared  by  the 
directors  in  fraud  of  creditors  and  applied  by  the  stock- 
holders in  payment  of  unpaid  balances  of  their  subscrip- 
tions to  the  capital  stock,  and  to  compel  plaintiffs  in 
error  to  pay  the  amount  of  their  subscriptions  repre- 
sented by  the  fraudulent  dividend  certificates.    *     *      * 


SHAREHOLDERS'  LIABILITY  999 

At  a  meeting  of  the  board  of  directors  held  in  the  City 
of  St.  Louis,  Missouri,  on  April  28,  1902,  when  the  cor- 
poration was  wholly  insolvent  and  unable  to  pay  any 
dividend  whatever  upon  its  stock,  the  directors,  for  the 
purpose  of  relieving  the  stockholders  from  liability  for 
the  unpaid  portion  of  the  stock  held  by  them,  pretended 
to  declare  a  dividend  of  $8,920.65,  and  authorized  the 
secretary  to  issue  dividend  certificates  [to  the  stock- 
holders and  to  issue  to  them  certificates  of  fully  paid 
stock]." 

Point  Involved:  Whether  a  stockholder  can  be  re- 
lieved as  to  creditors  of  his  liability  upon  his  subscrip- 
tion by  a  declaration  of  dividends  made  while  the 
corporation  is  insolvent  and  applied  in  payment  of  the 
stockholder's  liability. 

Mr.  Justice  Cartwright:  "*  #  *  A  contract  of 
a  corporation  limiting  the  liability  of  its  stockholders  to 
a  portion  of  the  par  value  of  their  stock  is  void  both  as 
to  creditors  and  the  assignee  in  bankruptcy.     *    *     •" 

Question  655:  What  was  the  scheme  in  this  case  to  release 
the  stockholder 's  liability  ?    Was  it  effective  ?    Why  ? 

Sec.  491.    What  Constitutes  Payment  for  Stock. 

Case  No.  656.    N.  T.  W.  Co.  v.  Gilfillan,  124  N.  Y.  302. 

Facts:  Suit  by  a  judgment  creditor  of  a  corporation 
to  recover  from  defendant  as  a  stockholder  of  such  cor- 
poration, pursuant  to  a  statute,  upon  the  ground  that 
the  capital  stock  had  not  been  paid  in  either  in  cash,  or 
in  property  fairly  worth  the  par  value  of  the  stock 
issued.    Further  facts  in  the  opinion. 

Point  Involved:  Whether  stock  is  to  be  considered 
as  paid  up  so  far  as  creditors  are  concerned  when  it  has 
been  issued  in  exchange  for  property  knowingly  or 
fraudulently  overvalued  by  the  corporation. 

Vann,  J.:  "The  substantial  issue  in  this  section  was 
whether  the  property  procured  in  exchange  for  stock 


1000  CORPORATIONS 

was  purchased  at  an  over-valuation,  not  through  error 
of  judgment,  but  in  bad  faith  and  to  evade  the  statute, 
(Douglass  v.  Ireland,  73  N.  Y.  100,  104.) 

"The  trial  judge  instructed  the  jury  that  if  they 
found  that  the  stock  issued  exceeded  in  amount  the  value 
of  the  property  taken  in  exchange  for  it  and  for  which 
it  was  issued,  and  that  the  trustees  deliberately  and  with 
knowledge  of  the  real  value  of  the  property  over-valued 
it  and  paid  in  stock  for  it  an  amount  which  they  knew 
was  in  excess  of  its  actual  value,  they  must  find  for  the 
plaintiff.  If  the  jury  do  not  find  this  to  be  the  fact, 
then  they  will  find  for  the  defendant. 

"The  jury  found  a  general  verdict  for  the  plaintiff, 
and,  as  a  special  verdict,  that  the  property  purchased 
at  $300,000  was  really  worth  but  $75,000. 

"The  evidence  in  support  of  the  verdict  is  sufficient, 
if  not  overwhelming. 

"The  company  was  organized  September  18,  1884, 
with  a  capital  stock  of  $300,000,  divided  into  600  shares 
of  $500  each.  Within  less  than  a  year  thereafter  it  was 
hopelessly  insolvent,  with  all  its  property  levied  upon 
under  an  execution  issued  on  a  judgment  recovered  by 
the  defendant,  its  president  and  a  trustee  from  the  out- 
set. None  of  the  stock  was  paid  for  in  cash  or  other- 
wise than  by  the  transfer  of  a  lot  of  unpatented  inven- 
tions of  one  Bliven.  Two  corporations  had  been  pre- 
viously organized,  with  the  defendant  as  a  trustee  in 
each,  to  handle  these  inventions,  one  of  which  seems  to 
have  been  merely  a  corporation  on  paper  that  'had  no 
existence  in  fact  to  amount  to  anything,'  while  the  other 
was  'a  disastrous  speculation.' 

"The  inventions  were  purchased  by  the  corporation, 
whose  transactions  are  directly  involved  in  this  action, 
substantially  in  the  following  manner,  viz.:  Bliven 
assigned  them  to  the  defendant,  who,  as  trustee,  trans- 
ferred them  to  the  company  in  consideration  of  the  entire 
capital  stock,  to  be  held  by  him  in  trust  as  follows, 
to-wit:  200  shares  for  the  benefit  of  the  company  itself; 
100  shares,  par  value  $50,000,  for  the  defendant— (in 


SHAREHOLDERS'  LIABILITY  1001 

payment  of  a  debt  of  $15,000  owing  him  by  Bliven) ;  10 
shares,  par  value  $5,000,  for  one  Baxter  (in  payment  of 
an  old  debt  of  Bliven  to  him  of  $2,500) ;  27  shares  ap- 
parently given  away  to  qualify  persons  as  trustees  and 
to  induce  them  to  act ;  the  remainder  to  Bliven  or  for  his 
benefit. 

"According  to  the  evidence,  the  jury  made  a  liberal 
estimate  of  the  real  value  of  the  inventions  when  they 
found  that  they  were  worth  $75,000.  The  good  faith  of 
the  trustees,  including  the  defendant,  as  one  of  the  most 
active  in  the  transaction  of  this  business,  may  be  inferred 
from  the  foregoing  facts.  If  they  honestly  considered 
the  inventions  worth  $300,000,  why  was  one-third  of  the 
avails,  $100,000  in  stock,  donated  to  the  company  by 
Bliven!  Why  did  the  defendant  accept  of  $50,000  in 
stock  in  payment  of  a  debt  of  $15,000?  Why  was  $5,000 
given  to  Dexter  to  pay  $2,500?  Why  was  $13,500  in 
stock  given  to  persons  to  induce  them  to  become  trus- 
tees? Would  $300,000  in  money  have  been  disposed  of 
in  this  way?  The  arrangement  to  thus  dispose  of  the 
stock  was  made  before  the  purchase  and  became  a  part 
of  it.  The  facts  were  all  known  to  the  trustees,  includ- 
ing the  defendant.  They  were  apparently  intelligent 
men,  the  defendant  being  a  physician.  Although  they 
testified  that  they  considered  the  inventions  worth 
$300,000  or  more,  the  surrounding  circumstances  per- 
mitted the  jury  to  find,  as  the  General  Term  said,  that 
they  'were  not  only  worth  less  than  the  price  agreed  to 
be  paid  for  them,  but  it  was  so  understood  by  the  defend- 
ant and  the  other  parties  to  the  transactions. '  From 
these  and  other  significant  facts,  not  recited,  it  is  evident 
that  a  case  was  presented  for  the  consideration  of  the 
jury,  and  that  the  motions  to  dismiss  were  properly 
denied. 

"The  merits  are  with  the  plaintiff,  and  when  that  is 
the  case  the  exceptions  should  be  overruled,  unless  a 
material  and  manifest  error  of  law  has  been  commit- 
ted." 


1002  CORPORATIONS 

Question  656:  (1.)  By  what  means  was  payment  made  in 
this  case?  Did  the  Court  hold  that  such  payments  were  suffi- 
cient to  constitute  payments  as  against  creditors? 

(2.)  A  company  was  organized  with  an  authorized  capital 
stock  of  $500,000.  This  stock  was  fully  paid  up  with  $2  cash 
and  a  breakfast  food  formula  appraised  at  $499,998.  The  cor- 
poration becomes  insolvent.  The  trustee  in  bankruptcy  sues  the 
stockholders.  Can  he  recover?  (Wood  v.  Sloman,  114  N.  W. 
(Mich.)  317.) 

Case  No.  657.    Gillett  v.  C.  T.  &  T.  Co.,  230  111.  373. 

Me.  Justice  Scott  delivered  the  opinion  of  the  court: 

"  First — It  is  contended  by  appellants  that  in  accept- 
ing certain  property  in  payment  of  MacKaye's  subscrip- 
tion to  the  capital  stock  of  the  Columbian  Celebration 
Company  to  the  amount  of  $1,999,600,  the  directors  fixed 
that  value  upon  the  property  offered  in  the  fair  and 
honest  exercise  of  their  judgment  as  to  its  worth,  and 
that  the  stock  must  therefore  be  regarded  as  fully  paid 
and  non-assessable,  even  if  the  directors  erred  in  their 
judgment  as  to  its  value. 

"When  the  board  of  directors  met  on  May  16,  1892, 
the  principal  asset  of  the  corporation  was  MacKaye's 
subscription  for  stock  to  the  amount  above  mentioned. 
The  law  required  the  directors,  in  collecting  that  sub- 
scription, to  obtain  from  MacKaye  ' money  or  money's 
worth'  to  the  full  amount  of  the  subscription.  (Cole- 
man v.  Howe,  154  111.  458;  Garden  City  Sand  Co.  v. 
Crematory  Co.,  205  id.  42.)  'Money  or  money's  worth' 
means  cash  or  its  equivalent.  If  the  directors  saw  fit  to 
accept  property  in  lieu  of  cash  they  could  only  take  it 
at  its  fair  cash  market  value,  if  it  was  property  which 
had  an  ascertainable  market  value.  If  it  had  no  ascer- 
tainable market  value,  then  the  only  price  at  which  the 
directors  could  purchase  it  was  such  price  as  could  be 
realized  by  selling  it  to  others  for  cash. 

"On  the  date  last  mentioned  the  directors  of  the  cor- 
poration entered  into  a  contract  with  MacKaye,  by  which, 
in  satisfaction  of  his  liability  on  his  subscription,  Mac- 


SHAREHOLDERS'  LIABILITY  1003 

Kaye  transferred  to  the  corporation  the  sole  and  exclu- 
sive right  to  use  eleven  alleged  new,  useful  and  valuable 
improvements  in  scenic  art;  also  the  right  to  use  and 
produce  a  * spectatorio '  or  play,  entitled  'The  Great  Dis- 
covery,' of  which  it  is  said  MacKaye  was  the  author,  in 
the  States  of  Illinois,  Indiana,  Michigan,  Minnesota, 
Iowa, and  Missouri,  for  a  period  of  fifteen  years,  bur- 
dened with  a  ten  per  cent  royalty  reserved  to  MacKaye. 
At  the  time  the  contract  was  made  no  application  had 
been  made  for  a  patent  on  any  of  the  inventions.  The 
description  of  the  inventions  contained  in  the  contract 
is  very  general  in  character.  With  one  or  two  excep- 
tions the  descriptions  are  not  such  as  would  enable  the 
reader  to  identify  the  invention.  They  consist  usually 
of  the  name  given  by  MacKaye  to  the  invention,  followed 
by  a  statement  of  the  object  of  the  invention.  The  play, 
'The  Great  Discovery,'  had  not  been  written.  At  the 
time  MacKaye 's  subscription  was  so  satisfied  the  direc- 
tors were  MacKaye,  Butterworth,  Crosley,  White  and 
Edmonds.  Crosley  did  not  attend  the  meeting  of  May 
16, 1892,  and  MacKaye  did  not  vote  upon  the  proposition 
in  reference  to  the  payment  of  his  subscription  by  the 
transfer  of  the  rights  above  enumerated.  Those  who 
voted  in  favor  of  accepting  the  proposition  were  Butter- 
worth,  White  and  Edmonds.  Butterworth  was  a  co- 
promoter  with  MacKaye,  and  a  few  days  later,  in  accord- 
ance with  an  arrangement  effected  prior  to  May  16, 
1892,  received  from  MacKaye  a  considerable  portion  of 
the  stock  subscribed  for  by  the  latter.  Edmonds  was  an 
assistant  to  Butterworth,  as  secretary  of  the  World's 
Columbian  Exposition.  White  was  a  clerk  in  the  employ 
of  MacKaye  and  Butterworth,  doing  clerical  work  in 
connection  with  the  promotion  of  MacKaye 's  scheme. 
So  far  as  the  transaction  of  business  affecting  the  corpo- 
ration was  concerned,  White  and  Edmonds  were  wholly 
dominated  by  MacKaye  and  Butterworth.  Edmonds 
testified  that  he  'never  formed  any  intelligent  conclu- 
sion as  to  the  value  of  the  patents,'  referring  to  the 
inventions  the  right  to  use  which  was  transferred  by 


1004  CORPORATIONS 

the  contract;  and  further:  'I  did  not  consider  it  (the 
MacKaye  proposition  which  was  accepted)  in  the  sense 
that  I  was  going  to  put  a  lot  of  money  in  it  myself,  but 
I  honestly  believed  on  May  16,  1892,  that  the  resolution 
was  for  the  best  interests  of  the  company  and  was  a 
good  proposition  for  it.'  White  says:  'I  don't  remem- 
ber making  any  inquiry,  as  a  member  of  the  board  of 
directors  or  an  officer,  into  the  merits  of  these  inven- 
tions. ' 

' '  It  will  no  doubt  be  agreed  that  the  rights  transferred 
to  the  corporation  by  the  contract  were  without  market 
value.  It  was  then  the  duty  of  the  directors,  before 
accepting  the  rights  transferred  by  this  contract  in  pay- 
ment of  this  large  subscription,  to  ascertain  whether 
those  rights  had  value,  and  if  so,  what  the  value  was. 
The  natural  and  reasonable  method  to  be  pursued  in 
determining  that  question  would  have  been  to  have  ap- 
plied to  men  not  interested  in  the  promotion  of  Mac- 
Kaye 's  scheme,  who  were  of  wide  experience  in  the  pro- 
duction of  great  spectacular  plays,  for  their  views  in 
reference  to  the  worth  of  the  rights  which  MacKaye  pro- 
posed to  transfer.  No  such  investigation  was  made. 
No  other  steps  were  taken  to  ascertain  the  value  of  the 
rights  MacKaye  proposed  to  transfer,  such  as  would 
have  been  taken  by  directors  seeking  to  deal  honestly 
and  fairly  with  the  assets  of  the  corporation.  It  was 
the  duty  of  these  directors  to  ascertain  the  value  of  these 
rights  precisely  as  they  would  have  done  had  they  in- 
tended to  invest  money  in  such  rights  themselves,  and 
that  they  did  not  do.  It  is  no  doubt  true  that  if  the 
directors,  in  the  fair,  honest  and  intelligent  exercise  of 
their  judgment,  make  a  mistake  and  accept  property  at 
a  price  greater  than  its  real  value,  such  cannot  be  re- 
garded as  a  fraudulent  over-valuation  of  the  property; 
but  that  rule  only  applies  where  the  transaction  con- 
stitutes a  valid  contract  of  bargain  and  sale,  made  in 
good  faith  on  the  part  of  the  directors  and  in  the  intelli- 
gent exercise  of  the  fair  and  honest  judgment  on  their 
part.    There  was  no  such  transaction  here.    The  trans- 


SHAREHOLDERS'  LIABILITY  1005 

fer  to  the  corporation  was  a  mere  sham.    It  was,  in  fact, 
a  sale  by  MacKaye  to  MacKaye,  and  was,  in  law,  a  fraud. 
*     *     It  follows  that  MacKaye 's  stock  subscription 
remained  wholly  unpaid. 

"Second — The  certificates  for  MacKaye 's  stock  re- 
cited that  the  shares  were  'fully  paid  and  non-assess- 
able,' and  the  law  is,  that  where  stock  is  so  issued  and 
the  holder  thereafter  sells  or  assigns  the  same,  and  the 
assignee  acquires  it  in  good  faith  and  without  notice  that 
it  has  not  been  fully  paid,  he  cannot  be  made  liable  if,  in 
fact,  the  stock  is  not  fully  paid.  (Coleman  v.  Howe, 
supra;  Sprague  v.  National  Bank  of  America,  172  111. 
149.)  Appellants  insist  that,  even  if  this  stock  was 
wholly  unpaid,  they  acquired  it  in  good  faith  without 
notice  of  that  fact,  and  are  therefore  not  liable.  'No- 
tice,' in  this  connection,  must  be  given  the  ordinary 
signification  of  that  term,  and  means  knowledge  that  the 
stock  was  unpaid,  or  knowledge  of  such  facts  as  would 
have  put  an  ordinarily  prudent  man  upon  inquiry,  when 
the  inquiry  might  reasonably  be  expected  to  have  led 
him  to  knowledge  that  the  stock  was  unpaid.  (Russell 
v.  Ranson,  76  111.  167.)  Many  of  the  appellants  knew 
precisely  how  MacKaye  had  paid  for  his  stock,  and  all 
of  the  appellants  acquired  their  stock,  as  they  knew, 
within  a  few  months  after  the  organization  of  this  cor- 
poration. They  obtained  it  without  giving  any  valuable 
consideration  therefor,  except  in  a  few  instances  where 
it  is  claimed  that  a  small  percentage  of  the  face  value  of 
the  stock  was  paid  therefor  by  services  rendered  or  by 
other  methods,  not  including  cash  actually  paid  at  the 
time  of  the  transfer  of  the  stock.  The  fact  that  the  cor- 
poration had  just  been  organized,  and  that  its  stock  was 
being  transferred  without,  or  practically  without,  any 
valuable  consideration,  was,  we  think  sufficient  to  put  a 
reasonably  prudent  man  upon  inquiry,  and  that  inquiry 
would,  in  our  judgment,  have  led  to  knowledge  of  the 
fact  that  the  stock  was  wholly  unpaid." 

Question  657:     (1.)     "What,  according  to  this  case,  constitutes 
a  bona  fide  valuation  by  directors? 


1006  CORPORATIONS 

(2.)  When  will  a  transferee  of  stock  be  deemed  to  have 
notice  that  the  stock  is  unpaid?  Does  the  recital  in  the  certifi- 
cates help  him? 

Case  No.  658.  First  National  Bank  of  Deadwood  v. 
Gustin  Co.  et  al.,  —  Minn.  — ,  61  L.  R.  A.  676. 

Facts:  Suit  by  the  bank  against  the  Gustin  Company 
and  the  other  defendants  to  compel  payment  of  a  debt  to 
the  bank  by  enforcement  of  stockholder's  liability.  The 
stock  was  issued  partly  at  one-tenth  of  its  par  value, 
and  partly  for  nothing.  The  bank  knew  this  when  it 
loaned  the  money  which  represents  the  present  debt. 

Point  Involved:  Whether  a  creditor  can  enforce 
stockholder's  liability  when  he  knew  at  the  time  he 
became  a  creditor  of  the  arrangement  between  the  cor- 
poration and  the  stockholder  by  which  the  stockholder 
was  to  have  no  further  liability  to  the  company. 

Mitchell,  J.:    "*     *    * 

"  While  the  courts  have  not  always  had  occasion  to 
state  the  limitations  upon  the  doctrine  that  'the  capital 
is  a  trust  fund  for  the  benefit  of  creditors,'  yet  we  think 
that  it  will  be  found  that  in  every  case  where  they  have 
impressed  a  trust  upon  the  subscription  of  the  share- 
holders it  has  been  in  favor  of  creditors  becoming  such 
afterwards,  and  hence  fairly  to  be  presumed  as  relying 
upon  the  amount  of  capital  which  the  company  was  rep- 
resented as  having.  We  are  referred  to  none,  and  have 
found  none,  where  any  such  trust  has  been  enforced  in 
favor  of  creditors  who  have  dealt  .with  the  corporation 
with  full  knowledge  of  the  facts.  The  reason  is  apparent, 
for  in  such  cases  no  fraud,  actual  or  constructive,  has 
been  committed  on  such  creditors. 

"If  a  corporation  issued  new  shares  after  the  claim 
of  a  creditor  arose,  it  is  clear  that  the  latter  could  not 
have  dealt  with  the  company  on  the  faith  of  any  capital 
represented  by  them.  Whatever  was  contributed  as 
capital  in  respect  of  the  new  shares  was  a  clear  gain  to 
the  creditor's  security.  So,  too,  if  a  party  deals  with  a 
corporation  with  full  knowledge  of  the  fact  that  its  nomi- 


SHAREHOLDERS'  LIABILITY  1007 

rial  paid-up  capital  has  not  in  fact  been  paid  for  in  money 
or  property  to  the  full  amount  of  its  par  value,  he  deals 
solely  on  the  faith  of  what  has  been  actually  paid  in,  and 
has  no  equitable  right  to  insist  on  the  contribution  of  a 
greater  amount  of  capital  by  the  shareholders  than  the 
corporation  itself  could  claim  as  part  of  its  assets.  Coit 
v.  North  Carolina  Gold  Amalgamating  Co.,  14  Fed.  Rep. 
12,  S.  C.  119  U.  S.  343  (30  L.  ed.  4201)." 

Question  658:     State  the  doctrine  of  this  case. 

(Note :  This  doctrine  is  not  universally  assented  to.  In  some 
states,  the  knowledge  of  the  creditor  is  immaterial.  He  can  in 
any  event  enforce  the  stockholder 's  liability  to  pay  in  full  either 
in  money  or  money's  worth.) 

Sec.  492.    Payment  as  Between  Corporation  and  Share- 
holder. 

(Note:  What  is  agreed  upon  between  the  parties  as  pay- 
ment will  constitute  payment  as  between  them,  in  the  absence 
of  fraud  on  the  other  stockholders.) 

Sec.  493.    Forfeiture  of  Stock  for  Non-Payment. 

(Note:  By  the  statutes  of  many  states  corporate  stock  may 
be  forfeited  for  non-payment.  In  such  a  ease  the  stock  is  re- 
sold and  in  case  of  any  deficiency  the  stockholder  is  liable  there- 
for. In  case  of  surplus,  \  after  paying  expenses,  the  same  is 
turned  over  to  the  stockholder.) 


CHAPTER    NINETY-SIX 
TRANSFER  OF  SHARES;  SPURIOUS  STOCK 

§  494.  Transferability   of    corporate       §  497.  Liability     of     transferee     to 

stock;  how  accomplished.  creditors. 

§  495.  Lien  of  corporation  on  shares.       §  498.  Liability    of    transferror    to 
§  496.  Liability  of  transferee  to  cor-  transferee. 

poration.  §  499.  Lost,  stolen  and  forged  cer- 

tificates;  transfer  of. 

Sec.  494.    Transferability  of  Corporate  Stock;  How 
Accomplished. 

Case  No.  659.  Ernst  v.  Elmira  Municipal  Improve- 
ment Co.,  54  N.  Y.  Sup.  116. 

Facts:  Suit  brought  by  owners  of  certain  of  the  capi- 
tal stock  of  Elmira  Municipal  Improvement  Company  to 
enjoin  the  issue  of  certain  preferred  stock  by  it  to  cer- 
tain stockholders  and  to  compel  the  company  to  recog- 
nize and  register  a  transfer  of  stock  to  the  complainants, 
purchased  by  them  from  registered  stockholders.  The 
complaint  alleges  that  the  corporation  has  no  power  to 
issue  preferred  shares  against  the  dissent  of  common 
stockholders. 

Points  Involved:  The  right  of  one  acquiring  stock 
from  a  shareholder  to  compel  the  company  to  recognize 
the  transfer  on  its  books,  the  right  of  such  a  one  whom 
the  company  has  refused  to  recognize  to  be  considered 
a  stockholder  in  fact;  whether  a  corporation  which  has 
issued  common  stock  can  afterwards  issue  preferred 
stock  without  the  unanimous  consent  of  all  the  stock- 
holders. 

1008 


TRANSFER  OF  SHARES  1009 

Laughlin,  J. :  l  *  *  *  *  The  demurring  defendants 
contend  that  the  plaintiffs'  only  remedy  is  an  action  at 
law  to  recover  the  value  of  the  stock  as  damages  for  the 
wrongful  refusal  to  transfer  the  stock  on  the  books  of 
the  company  and  to  issue  new  stock  to  the  plaintiffs.  It 
is  argued  that  the  corporation  owes  no  duty  to  the  trans- 
feree of  stock  and  that  there  is  no  privity  between  him 
and  the  company  until  he  has  become  a  stockholder  on 
its  books.  I  cannot  agree  with  the  contention.  *  *  * 
It  has  long  since  been  settled  that  an  equitable  action 
may  be  maintained  by  a  transferee  of  stock  to  compel  the 
company  to  transfer  the  stocks  upon  its  books,  and  that 
a  wrongful  refusal  to  transfer  amounts  to  a  waiver  of 
the  statutory  requirement  and  the  corporation  will  not 
be  permitted  to  take  advantage  of  its  own  wrong,  but 
the  transfer  will  be  deemed  complete,  and  the  company 
will  be  bound  to  recognize  it,  precisely  as  if  the  entries 
had  been  made  upon  the  company's  books.  *  *  * 
The  plaintiffs  are  *  *  *  entitled  to  have  the  trans- 
fer entered  on  the  books  of  the  company  and  to  have 
new  certificates  of  stock  issued  to  them  in  their  own 
names,  to  the  end  that  they  may  stand  in  the  unques- 
tionable position  for  the  assertion  and  protection  of  their 
rights  and  interests  in  the  corporation,  whatever  such 
rights  and  interests  may  be.     *     *     * 

(<«  *  #  jn  ^g  absence  0f  a  statutory  provision  of 
law  reserving  such  power,  there  can  be  no  issue  of  pre- 
ferred stock  in  a  corporation  to  the  prejudice  and  injury 
of  the  owners  of  the  common  capital  stock  without  their 
unanimous  consent.  Each  stockholder  has  a  vested 
individual  right  in  his  proportionate  share  of  the  cor- 
porate property  and  of  the  profits  of  the  business.  Such 
action  cannot  be  impaired  by  the  action  of  the  directors, 
or  of  any  majority  of  the  stockholders  without  his  con- 
sent. *  *  *  It  is  well  settled  by  authority  that  a 
suit  in  equity  will  lie  by  a  holder  of  common  stock  to 
enjoin  any  unlawful  or  unauthorized  issue  of  preferred 
stock.     *     *     *" 


1010  CORPORATIONS 

Question  659:  Answer  the  questions  suggested  in  the  "Points 
Involved"  in  this  case. 

Case  No.  660.  Brisbane  v.  D.  L.  &  W.  R.  Co.,  32  N.  Y. 
Supreme,  438. 

Appeal  from  a  judgment,  entered  upon  the  trial  of 
this  action  at  the  Special  Term. 

The  plaintiff  brought  this  action  to  compel  the  defend- 
ant to  issue  to  him  a  certificate  for  ten  of  its  shares  to 
which  he  claimed  to  be  entitled  as  the  transferee  of  ten 
shares  of  the  stock  issued  by  a  corporation  to  whose 
rights  and  obligations  the  defendant  is  shown  to  have 
since  succeeded,  or  in  case  of  the  inability  of  the  defend- 
ant to  issue  such  certificate  for  damages  to  the  extent 
of  the  value  of  such  stock.  This  certificate,  of  which  the 
plaintiff  was  the  transferee,  was  a  certificate  issued  to 
Samuel  Benedict,  and  it  contained  the  statement  that  he 
was  entitled  to  ten  shares  of  the  capital  stock  of  the 
corporation  issuing  it,  transferable  only  on  the  books  of 
the  company  upon  surrender  of  the  certificate.  Benedict 
executed  a  power  of  attorney,  indorsed  upon  the  cer- 
tificate, appointing  the  plaintiff  his  attorney  irrevocable 
to  sell  and  transfer  to  the  plaintiff  the  whole  or  any 
part  of  the  shares  specified.  This  power  was  given  on 
the  1st  day  of  January,  1856,  but  no  transfer  of  the 
shares  was  made  under  its  authority  during  the  life- 
time of  Benedict.  After  his  decease  and  in  the  year 
1876  his  administrator  procured  a  transfer  of  these 
shares  upon  the  books  of  the  defendant  to  himself.  The 
certificate  issued  for  the  shares  themselves  was  not  and 
could  not  be  by  him  produced,  and  according  to  its  terms 
he  was  not  entitled  to  the  transfer  of  the  shares  which 
he  caused  to  be  made,  and  the  defendant  it  was  claimed 
made  it  without  authority.  It  was  for  that  reason  held 
that  the  defendant  was  liable  to  that  extent  to  the  plain- 
tiff in  this  action. 

In  the  intermediate  time  a  stock  dividend  of  fifty  per 
cent  had  been  declared  in  favor  of  these  shares,  and 
further  dividends  in  cash  had  also  been  specifically  cred- 


TRANSFER  OF  SHARES  1011 

ited  to  them  on  the  books  of  the  defendant.  This  stock 
dividend  and  the  cash  dividends,  with  the  exception  of 
one  of  them,  were  credited  to  Benedict,  who  appeared 
on  the  corporate  books  to  be  the  owner  of  these  shares, 
and  they  were  accordingly  paid  over  to  his  administra- 
tor at  or  about  the  time  of  the  transfer  of  the  shares 
themselves.  The  plaintiff  insisted  upon  his  right  to  re- 
cover the  value  of  the  stock  dividend  and  the  amount 
of  the  cash  dividends  paid  te  the  administrator,  but 
these  portions  of  his  claim  were  rejected  as  not  well 
founded  by  the  decision  finally  made  in  the  action. 

The  court  at  General  Term  said:  "His  title  to  the 
dividends  rests  upon  a  different  basis  from  that  of  his 
right  to  the  shares  themselves,  for  those  shares  could 
not  lawfully  be  transferred  without  the  surrender  of  the 
certificate  which  had  been  issued  to  authenticate  the  right 
of  the  person  named  in  it  to  them.  But  as  long  as  the 
books  of  the  company  contained  evidence  that  the  person 
who  received  the  certificate  was  still  to  be  regarded  as 
the  owner  of  the  shares  it  had  an  authentic  record  upon 
which  it  could  lawfully  act,  and  that  determined  the  dis- 
position which  should  be  made  of  the  dividends.  Bene- 
dict stood  upon  the  books  of  the  company  as  owner  of 
the  shares.  Nothing  appeared  to  impeach  his  title ;  and 
as  they  were  only  transferable  upon  the  surrender  of 
the  certificate,  as  long  as  that  had  not  been  done,  no 
other  alternative  existed  than  to  regard  him  as  still  the 
owner  of  the  shares.  To  obtain  the  dividends  upon  the 
shares  he  was  not  bound  to  produce  the  certificate  which 
had  been  issued  for  the  stock,  but  he  could  do  so  upon 
the  fact  of  his  recorded  title  as  long  as  no  evidence  ap- 
peared from  which  his  right  could  be  impeached  or 
questioned.  Payment  to  him  under  such  circumstances 
would  be  a  lawful  and  proper  disposition  of  the  divi- 
dends. This  was  the  view  which  was  taken  of  the  sub- 
ject in  Smith  v.  American  Coal  Company  (7  Lans.  317); 
and  it  is  sustained  by  what  was  said  upon  the  same  sub- 
ject in  McNeil  v.  Tenth  National  Bank  (46  N.  Y.  325). 
And  it  was  also  considered  to  be  a  settled  principle  of 


1012  CORPORATIONS 

law  in  Manning  v.  Quicksilver  Mining  Company,  decided 
by  the  court  in  March,  1881.     (24  Hun,  360.) 

"When  Benedict  died  this  right,  as  it  appeared  to 
exist  in  him,  passed  to  his  administrator,  who  by  virtue 
of  that  relation,  acquired  the  same  title  to  the  dividends 
that  Benedict  could  have  asserted  in  case  he  had  lived. 
A  payment  to  him  was  authorized  by  the  evidence  of  title 
standing  upon  the  books  of  the  corporation,  and  his  fail- 
ure at  the  time  it  was  claimed  to  present  the  certificate 
issued  for  the  shares  was  not  a  circumstance  subjecting 
his  title  to  suspicion,  or  justly  rendering  it  a  subject  of 
inquiry. 

"If  notice  had  been  given  by  the  plaintiff  of  his  right 
to  receive  the  dividends  accruing  upon  the  shares,  the 
case  would  undoubtedly  require  a  different  determina- 
tion.,, 

Question  660:  Why  was  the  defendant  corporation  held  to 
be  liable  to  the  plaintiff  for  issuing  shares  to  the  administrator 
and  not  liable  for  having  paid  the  dividends  on  such  shares  to 
such  administrator?  Do  you  think  the  plaintiff  could  recover 
in  a  suit  against  such  executor  for  the  dividends  received  by  or 
credited  to  him  ? 

Sec.  495.    Lien  of  Corporation  on  Shares. 

Case  No.  661.  Dempster  Mfg.  Co.  v.  Downs  and  Mullen, 
126  la.  80. 

Facts:  Suit  by  the  corporation  against  Downs  on  a 
note  and  account  and  to  have  the  amount  found  due  en- 
forced as  a  lien  against  Down's  stock  in  the  corporation. 
The  stock  had  been  assigned  by  Downs  to  Mullen  as 
security  for  some  loans  and  Mullen  resists  the  estab- 
lishment of  a  lien  in  favor  of  the  corporation,  to  the  detri- 
ment of  his  security,  and  prays  that  the  officers  of  the 
corporation  be  compelled  to  transfer  the  stock  on  the 
books  of  the  company.  Mullen  was  ignorant  of  any  lien 
reserved  by  the  company  on  Down's  stock  and  there  was 
no  notice  of  such  lien  in  the  certificates  held  by  Downs 
and  pledged  to  Mullen.    The  company  claims  the  lien  by 


TRANSFER  OF  SHARES  1013 

virtue  of  a  provision  establishing  a  lien  of  unpaid  stock 
in  its  charter.  The  certificates  pledged  recited  that  the 
stock  was  full  paid  and  non-assessable,  and  transferable 
only  on  the  books  of  the  company. 

Point  Involved:  Whether  a  transferee  for  value  and 
without  notice,  of  shares  upon  which  a  corporation  holds 
a  lien  by  virtue  of  its  charter,  takes  the  stock  subject  to 
such  lien. 

Labd,  J. :  "  *  *  *  At  common  law  a  corporation 
had  no  lien  upon  the  shares  of  its  stockholders  for  debts 
due  from  them  to  the  company.  Secret  liens,  as  they 
impede  the  safe  and  speedy  transfer  of  property,  are 
always  discouraged;  and  courts  uniformly  refuse  to  en- 
force the  same,  as  against  stock,  unless  created  by  stat- 
ute, charter  or  by  law  of  the  company.  *  *  *  Cor- 
porations are  formed  in  this  state  by  the  adoption  of 
articles  of  incorporation  in  pursuance  of  the  general  laws 
enacted  by  the  legislature,  and  such  articles  in  connec- 
tion with  the  statutes  answer  the  same  purpose  as  a 
special  charter.  They  contain  the  terms  of  agreement 
between  the  company  and  its  stockholders,  and  indicate 
the  business  to  be  transacted.  *  *  *  j$y  accepting 
the  stock  in  the  corporation  every  stockholder  assents  to 
the  terms  and  conditions  found  in  the  articles.  Such  lien 
is  not  prohibited  and  may  be  created  by  the  articles  of 
incorporation.  *  *  *  Whether  they  may  be  accom- 
plished by  the  enactment  of  a  by-law  is  a  controverted 
question,  concerning  which  the  authorities  are  in  sharp 
conflict     *     *     *" 

Question  661:  (1.)  Did  a  corporation  at  common  law  have 
a  lien  on  the  stock  of  the  stockholders? 

(2.)  What  three  ways  are  stated  by  the  Court  in  which  a 
lien  may  be  given? 

(3.)  If  a  lien  is  conferred  by  by-law,  does  a  transferee  for 
value  and  who  has  no  notice  of  the  lien,  take  subject  to  such  lien  ? 

(4.)  If  a  lien  is  reserved  in  the  charter,  does  such  a  pur- 
chaser take  subject  to  such  a  lien? 

(5.)     If  the  certificate  recited  that  the  stock  represented  by 


1014  CORPORATIONS 

the  certificate  was  "fully  paid  and  non-assessable,"  do  yon  think 
that  a  general  lien  reserved  by  the  charter  on  unpaid  stock, 
would  be  asserted  against  a  purchaser  of  such  stock  V 

(Note :  The  recital  in  the  certificates  that  the  stock  was  fully 
paid  and  non-assessable,  would  seem  in  all  justice  to  prevent 
the  corporation  from  asserting  its  lien.  Surely,  inasmuch  as 
stock  certificates  are  so  commonly  transferred  on  the  market, 
there  ought  to  be  no  question  as  to  the  right  of  a  transferee,  for 
value,  to"  take  a  clear  title  irrespective  of  the  state  of  accounts 
between  the  transferror  and  the  corporation.) 

Sec.  496.    Liability  of  Transferee  to  Corporation. 

(Note :  The  transferee  is  liable  to  the  corporation  if  he  knows 
the  shares  are  not  paid  up.  If  the  shares  recite  they  are  fully 
paid,  a  transferee  may  rely  thereon.) 

Sec.  497.    Liability  of  Transferee  to  Creditors. 

Case  No.  662.    French  v.  Harding,  235  Pa.  St.  79. 

Facts:  A  proceeding  was  brought  in  the  New  Jersey 
courts  to  establish  the  insolvency  of  the  Agnew  Com- 
pany, collect  its  assets,  enforce  stockholders'  liability  on 
unpaid  stock  so  far  as  the  indebtedness  of  the  company 
should  require,  pay  off  its  creditors  and  wind  up  its  busi- 
ness. French  was  appointed  receiver  and  brings  suit  in 
the  Pennsylvania  court  to  enforce  Harding's  liability  as 
shareholder,  the  stock  held  by  him  having  never  been 
paid  for.  Harding  defends  that  he  is  not  an  original 
subscriber,  but  a  purchaser  from  a  shareholder  of  stock 
already  issued;  that  he  bought  the  stock  in  the  market 
through  a  broker  at  Philadelphia,  and  had  no  knowledge 
said  stock  was  unpaid. 

Point  Involved:  "Whether  a  transferee  of  issued  stock, 
who  does  not  know  that  it  is  unpaid,  can  be  held  for  the 
benefit  of  the  creditors  of  the  corporation. 

Head,  J.:    "•     *     * 

"(1.)  From  Cook  on  Corporations,  Vol.  1,  Sec.  50, 
where  may  be  found  a  general  discussion  of  this  question, 


TRANSFER  OF  SHARES  1015 

supported  by  many  notes  and  citations,  we  quote  the 
following:  'A  bona  fide  purchaser,  for  value  and  with- 
out notice,  of  stock  issued  by  a  corporation  as  paid  up, 
cannot  be  held  liable  on  such  stock  in  any  way,  either 
to  the  corporation,  corporate  creditors  or  other  persons, 
even  though  the  stock  was  not  actually  paid  up  as  repre- 
sented. *  *  *  The  law  goes  still  further  and  holds 
that  where  a  person  in  open  market,  in  good  faith  and 
without  notice,  purchases  certificates,  such  stock  is  to  be 
deemed  "paid  up"  in  his  hands,  and  he  is  protected  as  a 
bona  fide  purchaser,  even  though  there  is  nothing  on  the 
face  of  the  certificates  stating  that  they  are  paid  up.  This 
can  now  be  laid  down  as  the  established  rule.  It  is  based 
on  sound  public  policy,  favoring  as  it  does  the  transfer 
of  personal  property  and  the  quasi-negotiability  of  stock 
and  discountenancing  secret  liens  and  constructive  no- 
tice.'    *     *     *     " 

Question  662:    State  the  rule  of  this  case. 

Case  No.  663.    Edwards  v.  Schillinger,  230  111.  373. 
(Set  out  as  Case  No.  655,  supra.) 

Question  663:    Was  the  transferee  held  in  this  case ?    Why? 
Sec.  498.    Liability  of  Transferror  to  Transferee. 
Case  No.  664.    Burwash  v.  Ballou,  230  111.  34. 

Mr.  Chief  Justice  Hand:     "*     *     * 

"The  International  Copper  and  Gold  Company  was  a 
de  facto  corporation,  and  the  appellant  having  purchased 
its  stock  of  the  appellees,  in  a  proceeding  like  this,  no 
warranty  having  been  made  by  the  appellees  that  the  cor- 
poration issuing  such  stock  was  a  de  jure  corporation, 
the  appellant  cannot  escape  the  payment  of  the  considera- 
tion agreed  to  be  paid  by  him  for  such  stock,  by  showing 
that  the  International  Copper  and  Gold  Company,  which 
issued  said  stock,  was  not  legally  organized,  or  that  its 


1016  CORPORATIONS 

increase  of  stoek  of  which  that  purchased  by  appellant 
formed  a  part,  was  illegally  issued.  (Marshall  v.  Keach, 
227  111.  35.)  In  Higgins  v.  Illinois  Trust  &  Savings  Bank, 
193  111.  394,  it  was  held  that  the  vendor  of  stock  in  a  cor- 
poration impliedly  warrants  that  the  stock  is  genuine  and 
that  he  is  the  owner  thereof  and  authorized  to  transfer 
title,  and  that  if  the  assignee  desires  further  protection 
he  must  exact  a  special  warranty.  See  also  First  Nat. 
Bank  of  Sterling  v.  Drew,  191  111.  186." 

Question  664:    What  are  the  implied  warranties  of  a  seller  of 
corporate  stock? 

Sec.  499.    Shares  Transferred  Without  Authority;  Lost, 
Stolen  and  Forged  Certificates. 

Case  No.  665.     Jarvis  v.  Manhattan  Beach  Co.,  148 
N.  Y.  652. 

Facts:  Defendant,  The  Manhattan  Beach  Co.,  had  a 
capital  stock  of  $5,000,000  divided  into  $50,000  shares  of 
$100  each.  A  large  portion  of  the  stock  was  issued  and 
the  certificates  listed  on  the  N.  Y.  Stock  Exchange,  and 
were  subject  to  purchase  and  sale  by  the  public.  The 
certificates  were  signed  by  the  President  and  Assistant 
Treasurer,  and  in  order  to  guard  against  fraud  counter- 
signed and  registered  by  the  Central  Trust  Co.,  which 
acted  as  registrar  of  transfers  in  order  to  authenticate 
the  genuineness  of  the  certificates.  The  Manhattan 
Beach  Co.  had  an  office  in  New  York  City  where  the  trans- 
fers of  its  stock  were  made,  and  a  transfer  clerk  was  em- 
ployed there.  September  30, 1882,  this  transfer  clerk  de- 
livered to  a  firm  of  brokers  in  New  York,  in  the  ordinary 
course  of  business,  a  certificate  for  100  shares  of  the  stock 
of  the  Manhattan  Beach  Co.  to  be  sold  on  account.  This 
certificate  bore  the  genuine  signatures  of  defendant's 
president  and  assistant  treasurer,  and  was  countersigned 
by  Central  Trust  Company  with  certificate  registration. 
It  certified  that  one  B.  Bignell  was  owner  of  100  shares 
of  the  capital  stock  of  Manhattan  Beach  Co.,  and  the 


TRANSFER  OF  SHARES  1017 

name  of  B.  Bignell  was  indorsed  under  the  blank  form 
of  transfer  and  this  signature  purported  to  be  witnessed 
by  the  transfer  clerk.  This  certificate  was,  in  fact, 
spurious,  fabricated  by  the  transfer  clerk  over  the  gen- 
uine signatures  of  the  officers,  upon  blanks  used  for  issu- 
ing genuine  certificates.  Bignell  was  not  owner  of  any 
stock  and  did  not  sign  the  form  of  transfer.  By  the  rules 
of  the  stock  exchange  certificates  sold  there  must  either 
stand  in  the  name  of  some  member  and  be  indorsed  in 
blank  by  him,  or  else  must  be  guaranteed  by  a  member 
of  the  exchange.  The  brokers  who  sold  this  certificate 
were  therefore  obliged  to  guarantee  that  it  was  genuine. 
To  find  out  whether  it  was  genuine  they  sent  it  by  mes- 
senger to  Central  Trust  Co.  and  then  to  the  transfer 
office  and  were  informed  it  was  properly  registered  and 
at  the  defendant's  office  that  it  was  all  right.  They  then 
sold  it  and  remitted  the  proceeds  to  the  transfer  clerk, 
less  commissions.  About  two  years  later  they  were 
obliged  to  make  the  stock  good,  and  this  is  a  suit  by 
Jarvis,  who  represents  the  brokers  as  their  assignee  to 
recover  the  loss  thus  sustained  by  the  brokers.  In  1884 
the  transfer  clerk  absconded  and  it  was  found  he  had 
issued  many  fraudulent  certificates.  He  had  charge  of 
the  stock  ledger  and  transfer  books,  and  no  supervision 
had  been  kept  over  him  or  examination  made  of  his 
books. 

0  'Brien,  J. :     (After  stating  the  facts,  substantially  as 

above.) 
<<*     *     * 

1 ■  The  principles  upon  which  a  corporation  may  be  held 
liable  to  a  bona  fide  holder  of  certificates  of  stock,  fraudu- 
lently issued  or  put  in  circulation  by  the  wrongful  or 
criminal  acts  of  its  officers  or  agents,  are  quite  well  set- 
tled. Numerous  cases  involving  these  questions  have 
received  the  attention  of  this  Court  and  quite  recently 
some  new  features  of  such  transactions  have  appeared. 
(N.  Y.  &  N.  H.  R.  E.  Co.  v.  Schuyler,  34  N.  Y.  30;  Fifth 
Avenue  Bank  v.  Forty-second  Street,  etc.,  R.  R.   Co., 


1018  CORPORATIONS 

137  N.  Y.  231 ;  Manhattan  Life  Ins.  Co.  v.  Forty-second 
Street,  etc.,  R.  B.  Co.,  139  N.  Y.  146;  Knox  v.  Eden  Musee, 
etc.,  Assn.,  148  N.  Y.  441.) 

"The  liability  in  such  cases  *s  determined  by  an  appli- 
cation of  the  general  rules  of  law  that  govern  the  relations 
of  principal  and  agent  as  developed  and  applied  to  cor- 
porations, acting  solely  through  such  agencies.  The 
principal  is  liable  to  a  third  person  in  a  civil  action  for 
the  fraud  or  other  malfeasance  of  his  agent,  perpetrated 
by  the  latter  in  the  course  of  his  employment,  although 
the  principal  did  not  authorize,  justify  or  know  of  the 
misconduct.  In  this  case  the  certificate  contained  the 
genuine  signatures  of  three  authorized  officers  or  agents 
of  the  defendant,  namely  the  president,  the  assistant 
treasurer  and  the  registrar.  The  paper  upon  its  face 
was  an  assurance  to  the  public,  through  the  acts  of  its 
officers,  that  a  person  named  therein,  whether  a  real  or 
fictitious  person,  was  the  owner  of  one  hundred  shares 
of  its  capital  stock.  It  had  upon  its  face  all  the  essential 
evidence  of  genuineness,  and  it  was  presented  to  the 
brokers  for  sale,  apparently  in  proper  form  for  transfer, 
by  the  very  agent  of  the  defendant,  that  it  had  held  out 
to  the  public  as  the  person  who  had  the  power  to  repre- 
sent and  act  for  it  in  making  such  transfer.  When  the 
paper  was  delivered  to  the  brokers  by  the  transfer  clerk, 
having  indorsed  thereon  what  appeared  to  be  a  regular 
transfer,  it  is  difficult  to  see  why  it  was  not  received  by 
them  with  every  reasonable  assurance  that  the  defendant 
was  able  to  give,  that  the  certificate  was  not  only  genuine 
stock,  but  in  a  condition  to  be  transferred  upon  the  books 
in  favor  of  any  one  who  should  receive  it  in  good  faith. 
The  paper  in  fact,  however,  was  nothing  but  a  fictitious 
and  fraudulent  device  on  the  part  of  the  transfer  agent 
which  he  had  fabricated  for  purposes  of  his  own,  and 
although  the  evidence  tended  to  show  that  his  frauds  in 
this  respect  could  have  been  detected  or  prevented  by  the 
exercise  of  reasonable  diligence  on  the  part  of  the  de- 
fendant's officers,  yet,  as  the  brokers  knew,  or  ought  to 
have  known,  that  he  was  dealing  with  himself  in  respect 


TRANSFER  OF  SHARES  1019 

to  the  certificate,  it  may  very  well  be  that  this  circum- 
stance was  sufficient  to  put  them  on  their  guard  and  to 
impose  upon  them  the  duty  of  making  some  inquiry  as  to 
its  origin  and  validity.  The  paper  came  to  them  accred- 
ited by  the  genuine  signatures  of  the  proper  officers  of 
the  defendant  and  countersigned  by  the  registrar,  whose 
duty  it  was  to  guard  against  unauthorized  or  fraudulent 
issues  of  the  stock.  These  signatures  carried  with  them, 
to  strangers  at  least,  the  very  highest  assurance  of  the 
genuine  character  of  the  security.  But  we  do  not  think 
it  is  necessary  in  this  case  to  decide  what  the  liability  of 
the  defendant  would  be  in  case  it  appeared  that  the 
brokers  took  the  certificate  without  inquiry,  since  the 
proof  tended  to  show  that  they  were  not  negligent  in  that 
respect.  This  was  really  the  only  question  of  fact  con- 
tested at  the  trial  and  submitted  by  the  court  to  the 
jury.  While  such  certificates  do  not  possess  all  the  quali- 
ties of  commercial  paper,  they  do  possess  some  of  them, 
and  innocent  parties  dealing  in  them  will  be  protected 
upon  analagous  principles  and,  in  a  proper  case,  will  be 
entitled  to  compel  recognition  as  stockholders,  where 
power  exists  to  issue  new  certificates  or  to  indemnify  if 
there  was  not." 

Question  665:  (1.)  State  briefly  the  facts  of  this  case  and 
the  Court's  decision. 

(2.)  If  the  transfer  clerk  had  forged  the  names  of  the  three 
officers,  do  you  think  the  corporation  would  have  been  held? 

Case  No.  666.    Chicago  Edison  Co.  v.  Fay,  164  HI.  323. 

Facts:  Fay  sues  the  Chicago  Edison  Co.  to  compel  it 
to  issue  to  him  200  shares  of  its  capital  stock  in  lieu  of 
200  shares  of  such  stock,  belonging  to  him,  which  upon 
forged  assignments  and  without  his  authority  had  been 
surrendered  up  to  the  company  and  cancelled  and  new 
certificates  issued  to  the  assignees,  who  were  innocent 
purchasers  or  pledgees. 

The  circumstances  were  that  in  June,  1894,  Fay  went 
to  the  seashore  for  the  summer,  leaving  his  office  and  busi- 


1020  CORPORATIONS 

ness  affairs  in  Chicago  in  charge  of  Anderson,  his  pri- 
vate secretary,  giving  Anderson  a  power  of  attorney  to 
draw  and  endorse  checks  and  drafts  on  the  Northern 
Trust  Co.  He  also  directed  Anderson  to  pay  the  last 
installment  on  the  Chicago  Edison  stock  and  receive  and 
keep  the  same,  and  this  stock  was  by  Anderson  after- 
wards paid  for  and  delivered  to  Anderson  made  out  to 
Fay.  Fay  had  had  previous  dealings  with  Slaughter  & 
Co.,  brokers  and  bankers,  and  they  knew  Anderson  to  be 
Fay's  private  secretary  and  man  of  affairs.  Anderson 
sent  one  of  the  100-share  certificates  to  Slaughter  &  Co. 
for  them  to  sell,  forging  Fay 's  name  to  the  blank  form  of 
transfer.  Slaughter  &  Co.  took  the  certificate  to  the  com- 
pany and  had  it  transferred  on  the  books  in  two  lots, 
one  certificate  for  50  shares  being  issued  in  the  name  of 
Slaughter  &  Co.  and  the  other  certificate  being  issued 
in  the  name  of  the  purchaser  to  whom  Slaughter  &  Co. 
had  sold  the  same,  and  Slaughter  &  Co.  then  sent  a  check 
to  Anderson  made  out  to  Fay  for  approximately  $12,000, 
representing  the  amount  for  which  they  sold  the  50  shares 
and  the  amount  advanced  by  them  as  a  loan  on  the  other 
50  shares.  Anderson,  about  two  weeks  later  sent  over 
the  other  100-share  certificate  and  procured  a  further 
loan  of  $8,000,  Fay's  signature  being  forged  to  this  cer- 
tificate as  to  the  other.  This  certificate  was  surrendered 
to  the  company  and  two  certificates  issued  in  its  stead, 
one  for  25  shares  to  the  purchaser  and  one  for  75  shares 
to  Slaughter  &  Co.  Anderson  deposited  to  Fay's  account 
all  of  the  money  so  received,  and  then  checked  it  out  for 
his  own  use  by  authority  of  his  power  of  attorney  and 
then  absconded.  The  Edison  Company  refuses  to  recog- 
nize Fay  as  a  stockholder,  and  this  is  a  bill  to  compel  such 
recognition.  The  Court  below  entered  a  decree  in  Fay's 
favor. 

Point  Involved:  Whether  a  stockholder  can  lose  his 
rights  as  such  through  a  forged  transfer  of  his  stock  by 
another  who  is  his  agent  for  other  purposes  which  forged 
transfer  has  been  recognized  by  the  company  and  a  trans- 
fer made  pursuant  thereto  on  its  books. 


TRANSFER  OF  SHARES  1021 

Mr.  Justice  Carter:    "The  decree  below  was  right 
*     *     Appellant  acted  at  its  peril  in  cancelling  Fay's 
certificates  of  stock  and  in  issuing  to  others  other  certifi- 
cates therefor  on  the  forged  assignments.    Forgery  can 
confer  no  rights  or  authority  upon  anybody.     *     *     * ' ' 

(Note:  See  also  Fay  v.  Slaughter,  wherein  on  this  same  set 
of  facts,  Slaughter  &  Co.  sued  Fay  for  the  money  paid  to  the 
agent,  and  the  Court  held  that  they  could  not  recover.) 

Question  666:  (1.)  The  M  corporation  issues  a  certificate 
of  stock  to  A.  A's  name  is  forged  by  his  agent  B,  to  the  blank 
power  of  attorney  and  form  of  transfer,  and  the  certificate  is 
then  sold  to  C.    Has  C  any  right  as  a  stockholder  ? 

(2.)  Same  case.  C  takes  the  certificate  to  the  company  and 
it  takes  up  and  cancels  the  certificate  and  issues  a  new  one  in 
its  stead,  delivering  the  same  to  C,  and  C  is  put  upon  the  books 
as  a  stockholder  as  transferee  of  A 's  stock.  Is  A  deprived  of  his 
stock?  Is  C  a  stockholder  or  has  he  any  rights  against  the 
company  ? 

(3.)  Same  case.  C  takes  the  new  certificate  which  certifies 
him  as  a  stockholder  and  sells  same  to  D.  The  original  forgery 
by  B  is  discovered  and  the  company  refuses  to  recognize  D  or 
give  him  any  damages.  D  files  a  bill  and  asks  for  a  decree  estab- 
lishing him  as  a  stockholder,  or  in  lieu  thereof  to  give  him 
damages.    Has  he  any  remedy? 

Case  No.  667.    Sarin  v.  Wilson,  —  Cal.  — ,  13  L.  R.  A. 

605. 

Facts:  Plaintiff  is  owner  of  a  100-share  certificate  of 
stock  in  a  mining  corporation  issued  to  one  H.  B.  Par- 
sons and  properly  indorsed  by  him.  An  employee  of 
plaintiff  stole  the  certificate  and  delivered  the  same  to 
the  defendant  as  a  broker  to  sell  said  stock  for  him.  The 
defendant  made  the  sale  and  turned  over  the  proceeds  to 
the  thief.  The  defendant  was  ignorant  of  the  theft  and 
acted  in  good  faith.  He  is  now  sued  for  his  alleged  con- 
version of  defendant's  property. 

Point  Involved:  Whether  a  thief  of  stock  certificates 
so  indorsed  as  to  pass  by  delivery  can  give  a  good  title 
thereto  to  innocent  purchasers. 


1022  CORPORATIONS 

De  Haven,  J. :  * '  To  hold  the  defendant  liable,  under 
the  circumstances  disclosed  here,  may  seem  upon  first 
impression  to  be  a  hardship  upon  him.  But  it  is  a  matter 
of  every-day  experience  that  one  cannot  always  be  per- 
fectly secure  from  loss  in  his  dealings  with  others,  and 
the  defendant  here  is  only  in  the  position  of  a  person 
who  has  trusted  to  the  honesty  of  another,  and  has  been 
deceived.  He  undertook  to  act  as  agent  for  one  whom  it 
now  appears  was  a  thief,  and,  relying  upon  his  repre- 
sentations, he  aided  his  principal  to  convert  the  plain- 
tiff's property  into  money,  and  it  is  no  greater  hardship 
to  require  him  to  pay  to  the  plaintiff  the  value  of  this 
property  than  it  would  be  to  take  it  away  from  the  inno- 
cent vendee  who  purchased  and  paid  for  it.  And  yet  it 
is  universally  held  that  the  purchaser  of  stolen  chattels, 
no  matter  how  innocent  or  free  from  negligence  in  the 
matter,  acquires  no  title  to  such  property  as  against  the 
owner,  and  this  rule  has  been  applied  in  this  court  to  the 
innocent  purchaser  of  shares  of  stock.  Barstow  v.  Sav- 
age Min.  Co.,  64  Cal.  388;  Sherwood  v.  Meadow  Valley 
Min.  Co.,  50  Cal.  413     *     *     *" 

Question  667:  (1.)  In  what  shape  was  this  property  when 
it  was  stolen,  in  respect  to  signatures  ? 

(2. )  If  the  owner  of  the  certificate  had  placed  it  witL  a  broker 
as  collateral  for  a  loan  from  the  broker,  and  the  certificate  was 
indorsed  in  blank,  so  that  it  could  be  transferred  by  mere  de- 
livery, and  the  broker  in  violation  of  his  right  had  sold  to  an 
innocent  purchaser,  do  you  think  the  owner  would  have  been 
estopped  to  set  up  the  fraud  ? 

Case  No.  668.    Otis,  Adm'r,  v.  Gardner,  105  111.  436. 

Facts :  Sheridan  Wait,  in  his  lifetime,  was  the  owner 
of  100  shares  of  stock  in  Calumet  &  Chicago  Canal  & 
Dock  Co.,  of  par  value  of  $10,000  represented  by  certifi- 
cates issued  to  him.  Written  on  the  back  of  each  cer- 
tificate was  a  blank  assignment  and  power  of  attorney, 
that  would  authorize  the  assignee  to  have  the  stock  repre- 
sented by  such  certificates  formally  transferred  to  him 
on  the  books  of  the  company.    March  16,  1875,  Wait  in- 


TRANSFER  OF  SHARES  1023 

dorsed  the  certificates  below  the  blank  form  of  transfer 
and  delivered  them  to  Chauncey  T.  Bowen,  and  Bowen 
gave  back  a  receipt  reciting  he  had  ''borrowed"  the  stock 
and  that  it  was  to  be  returned  on  demand.  The  purpose 
of  this  loan  did  not  appear.  Afterwards  Bowen  wrong- 
fully pledged  these  two  certificates  as  collateral  security 
for  the  payment  of  his  notes  to  Jefferson  Gardner,  the 
defendant  in  this  case.  The  blank  form  of  transfer  con- 
sisting in  an  assignment  and  a  power  of  attorney.  Otis, 
as  administrator  of  Wait,  filed  this  bill  against  Gardner 
and  the  corporation.  The  bill  asked  for  a  decree  that 
the  stock  be  declared  to  belong  to  Wait's  estate;  that 
the  old  certificate  be  cancelled,  and  a  new  certificate  be 
issued  to  the  administrator  by  the  company,  and  that 
he  be  recognized  as  a  stockholder  on  the  books. 

Point  Involved:  Whether  placing  in  the  hands  of  an 
agent,  a  stock  certificate,  so  indorsed  that  it  may  be  trans- 
ferred by  mere  delivery,  estops  the  true  owner  to  set  up 
his  title  against  an  innocent  purchaser  or  pledgee  for 
value  of  such  certificate  to  whom  such  agent  has  without 
actual  authority  transferred  it. 

Mr.  Chief  Justice  Scott  :  ' '  The  intestate  placed  the 
certificates  in  the  hands  of  Chauncey  T.  Bowen,  with  a 
blank  assignment  written  thereon,  authorizing  an  abso- 
lute transfer  of  the  stock  to  the  assignee,  under  the  by- 
laws of  the  company.  *  *  *  It  was  pledged  to  Gard- 
ner, in  the  usual  course  of  business,  as  collateral  security 
for  the  indebtedness  of  the  holder,  and  was  taken  in  good 
faith,  without  the  slightest  knowledge  that  any  one  other 
than  the  pledgor  claimed  or  had  any  interest  in  the  stock 
represented  by  the  certificates.  As  has  been  seen,  the 
certificates  of  stock  were  placed  in  the  hands  of  Bowen 
by  the  intestate  in  such  condition  they  could  be  readily 
sold  or  hypothecated  by  him,  and  if  his  assignee  made 
an  improper  use  of  them,  the  assignor,  if  living,  could 
get  no  relief  against  that  which  he  deliberately  author- 
ized to  be  done,  if  it  would  affect  injuriously  an  inno- 
cent purchaser  for  value,  and  his  personal  representa- 


1024  CORPORATIONS 

tive  can  have  no  relief  that  could  not  be  granted  on  a  like 
bill  by  the  intestate,  if  living.  The  principle  is,  that 
when  one  of  two  or  more  persons  must  suffer  loss,  upon 
him  whose  conduct  made  it  possible  for  loss  to  occur 
should  the  consequences  ultimately  rest." 

Question  668:    State  what  the  Court  holds  in  this  case. 


CHAPTER    NINETY-SEVEN 

VARIOUS  RIGHTS  OF  STOCKHOLDERS  IN  GOING 

CONCERN 

§  500.  Stockholders'  meetings;  vote.  §  503.  Right    to    inspect    corporate 

§  501.  Dividends.  books  and  records. 

§  502.  Right  to  prevent  ultra  vires  §  504.  Right    to    contract    and   deal 

acts  and  to  sue  or  defend  in  with  corporation. 

behalf  of  corporation. 

Sec.  500.    Stockholders'  Meetings;  Vote. 

Case  No.  669.  Warner  v.  Mower,  et  al.,  11  Vermont 
Reports,  385. 

Facts:  Suit  involving  the  title  to  property,  plaintiff 
claiming,  under  a  deed  of  assignment  executed  hy  the 
president  of  the  company,  and  defendant  claiming  as 
creditor  under  attachments  made  against  the  company 
after  such  assignment.  Defendant  claims  that  the  assign- 
ment by  the  president  was  void,  because  never  properly 
authorized  by  the  corporation.  The  facts  were  that  the 
regular  annual  meeting,  in  accordance  with  the  by-laws, 
was  held  April  5, 1837,  the  secretary  having  given  a  gen- 
eral notice  to  all  stockholders,  but  not  stating  the  busi- 
ness to  be  transacted;  that  the  meeting  was  adjourned 
by  the  stockholders  present  till  April  19, 1837,  no  further 
notice  being  given  that  at  such  adjourned  meeting  the 
vote  in  question  was  taken.  Defendant  contends  that  the 
vote  was  invalid  to  confer  authority  on  the  president 
because  of  the  lack  of  any  notice  of  the  adjourned  meet- 
ing, or  if  the  notice  of  the  original  meeting  was  good 
for  the  adjourned  meeting,  then  that  it  was  insufficient 

1025 


1026  CORPORATIONS 

in  its  substance,  namely,  that  it  did  not  state  the  business 
to  be  performed. 

Eedfield,  J.:     "*     *     * 

"The  authority  of  the  president  to  make  such  con- 
veyance depends  altogether  upon  the  vote  of  the  corpora- 
tion, at  their  annual  meeting  in  the  year  1837,  held  by 
adjournment  from  the  day  fixed  by  the  by-laws:  It  is 
too  well  settled  to  require  comment,  that  all  corpora- 
tions, whether  municipal  or  private,  may  transact  any 
business  at  an  adjourned  meeting,  which  they  could  have 
done  at  the  original  meeting.  It  is  but  a  continuation 
of  the  same  meeting.  Whether  the  meeting  is  continued 
without  interruption  for  many  days,  or  by  adjournment 
from  day  to  day,  or  from  time  to  time,  many  days  inter- 
vening, it  is  evident  it  must  be  considered  the  same  meet- 
ing, without  any  loss  or  accumulation  of  powers.  Schoff 
v.  Bloomfield,  8  Vt.  E.  472. 

"It  is  to  be  borne  in  mind,  too,  that  a  manifest  dis- 
tinction obtains  between  general  stated  meetings  of  a 
corporation  and  special  meetings.  I  know  that  stated 
meetings  may,  nevertheless,  be  special,  i.  e.,  limited  to 
particular  business.  But  stated  meetings  of  a  corpora- 
tion are  usually  general,  i.  e.,  for  the  transaction  of  all 
business  within  the  corporate  powers.  Unless  the  object 
of  such  meeting  is  restricted  by  express  provision  of  the 
by-laws,  it  would  ordinarily  be  understood  to  be  general ; 
and  so  every  corporator  would  be  bound  to  understand 
it.  But  if  the  object  of  the  meeting  be  limited  by  the 
by-laws,  it  is  then  a  special  meeting,  and  no  other  busi- 
ness could  lawfully  be  transacted  at  such  meeting,  unless 
special  notice  was  given.  Where  the  meeting  is  stated 
and  general,  no  notice  is  required,  either  of  the  time  or 
place  of  holding  the  meeting,  or  of  the  business  to  be 
transacted.  Angell  &  Ames  on  Corporations,  275.  Such 
is  the  general  law  of  private  corporations. 

"But  as  all  corporations  are  entities  of  the  law  merely, 
and  exist  and  act  solely  in  conformity  to  their  charter 
and  by-laws,  it  is  obvious  that  the  force  and  effect  of 


STOCKHOLDERS'  MEETINGS  1027 

every  act  of  any  particular  corporation  must  depend 
mainly  upon  the  charter  and  by-laws  of  that  corporation. 
These  are  denominated  the  constitution  and  laws  of  the 
corporation,  and,  like  every  other  constitution  and  all 
other  laws,  should  receive  such  construction,  as  to  effect 
the  probable  intention  of  the  framers.  That  intention 
must  be  judged  of  as  in  other  cases,  by  the  words  used 
in  reference  to  the  subject-matter  and  circumstances  of 
each  particular  corporation. 

' '  The  charter  of  this  corporation  provides  for  the  first 
meeting  of  the  corporation  specially,  and  that  at  that 
meeting,  and  at  all  other  meetings  legally  notified,  they 
may  make  and  alter  such  by-laws  as  may  be  thought 
necessary.  There  being  thus  no  restriction  in  the  charter, 
in  relation  to  meetings  of  the  corporation,  or  the  busi- 
ness to  be  transacted,  that  subject  will  be  governed  ex- 
clusively by  the  by-laws. 

"Those  by-laws  provide  for  an  annual  meeting  of  the 
corporation,  to  be  holden  at  their  counting  room,  on  the 
first  Wednesday  in  April,  of  each  year.  Thus  far  the 
time  and  place  of  the  meeting  is  fixed,  and  there  being 
no  restriction  in  regard  to  business,  any  and  all  business, 
pertaining  to  the  interest  and  powers  of  the  corporation, 
may  be  transacted.  The  annual  meeting,  of  all  others, 
is  the  one  when,  not  only  usually,  but  always,  all  business 
is  expected  to  be  transacted.  And  the  common  custom 
of  a  country  is  of  great  force  in  the  construction  of 
statutes,  as  well  as  contracts.     *     *     * 

"But  there  is  no  doubt  that  a  corporation  might  pro- 
vide that  even  stated  meetings  should  be  warned  in  a 
particular  manner,  and  that  unless  they  were  so  warned, 
no  business  could  be  transacted.  This,  in  regard  to 
special  meetings,  is  done  in  the  present  case,  and  I  have 
no  doubt,  as  such  special  meetings  rest  solely  upon  the 
notice  given,  for  their  authority,  that  the  notice  must  be 
such  as  is  required  by  the  by-laws,  or  the  meetings  would 
be  wholly  without  authority,  and  all  business  attempted 
to  be  then  done,  would  be  of  no  binding  force  upon  the 
corporation.    For  the  minority,  if  any,  whether  present 


1028  CORPORATIONS 

or  absent,  could  not  be  bound,  except  in  obedience  to  the 
by-laws.  For  in  that  mode,  and  that  only,  have  they  con- 
sented to  be  bound.  Every  member  is  entitled  to  notice 
of  special  meetings  unless  the  by-laws  excuse  it.  Kynas- 
ton  v.  Mayor  of  Shrewsbury,  2  Strange 's  R.  1051 ;  King 
v.  Theoderic,  8  East's  R.  543;  1  Strange 's  R.  385;  2  Bur- 
row's R.  723;  do  728;  Stow  v.  Wise,  7  Conn.  R.  219." 

Question  669:  (1.)  May  a  stated  meeting  be  held  without 
notice,  if  none  is  required  by  charter  or  by-law  ? 

(2.)     May  a  special  meeting  be  held  without  notice? 

(3.)  Must  a  notice  of  annual  or  other  regular  meeting  state 
what  is  to  be  done  at  the  meeting? 

(4.)  Must  a  notice  of  a  special  meeting  state  the  purposes 
for  which  it  is  called  ? 

(5.)  If  a  meeting  is  properly  noticed,  must  there  be  further 
notice  of  any  adjournment  of  such  meeting  ? 

Case  No.  670.  Morrill  v.  Little  Falls  M'f'g  Co.,  53 
Minn.  371. 

Point  Involved:  As  to  what  constitutes  a  quorum  at  a 
stockholders'  meeting  (in  the  absence  of  express  stipu- 
lation);  whether  one  stockholder  can  hold  a  meeting; 
whether  notice  of  a  stated  meeting  is  required  when  not 
provided  in  the  by-laws. 

Mitchell,  J. :  "As  affecting  the  validity  of  the  deeds 
executed  in  1882,  in  behalf  of  the  corporation,  by  Thayer 
as  president,  the  appellants  assail  the  finding  of  the  Court 
as  to  the  election  of  directors  in  August,  1881.  The 
grounds  of  objection  are :  First,  that  no  notice  was  given 
of  the  meeting;  and,  second,  that  it  required  a  majority 
of  the  shares  of  stock  to  constitute  a  quorum  to  hold  a 
meeting,  or,  in  any  event,  that  one  person  could  not  hold 
a  meeting,  that  at  least  two  persons  are  necessary  to 
constitute  a  corporate  meeting. 

"As  to  the  first  point,  all  that  is  necessary  to  say  is 
that  the  by-laws  fixed  the  time  and  place  of  holding  the 
meeting,  and  neither  the  charter  nor  the  by-laws  required 
any  notice  to  be  given.     Under  such  circumstances,  the 


STOCKHOLDERS'  MEETINGS  1029 

rule  is  that  the  by-laws  themselves  are  sufficient  notice  to 
all  the  stockholders,  and  no  further  notice  is  necessary. 
1  Mor.  Priv.  Corp.,  Sec.  479. 

"The  second  objection  is  equally  untenable.  Where 
the  charter  and  by-laws  of  a  corporation  are  silent  on  the 
subject,  the  common-law  rule  is  that  such  of  the  share- 
holders as  actually  assemble  at  a  properly  convened 
meeting,  although  a  minority  of  the  whole  number,  and 
representing  only  a  minority  of  the  stock,  constitute  a 
quorum  for  the  transaction  of  business,  and  may  express 
the  corporate  will,  and  the  body  will  be  bound  by  their 
acts.  Cook,  Stock  &  S.,  Sees.  607,  623;  2  Kent,  Comm. 
293;  Mor.  Priv.  Corp.,  Sec.  476;  Craig  v.  First  Presby- 
terion  Church,  88  Pa.  St.  42;  Eex.  v.  Varlo,  Cowp.  248; 
Columbia  Bottom  Levee  Co.  v.  Meier,  39  Mo.  53;  Ex 
parte  Willcocks,  7  Cow.  402;  Field  v.  Field,  9  Wend.  395. 

"The  contention  of  appellants  that  this  rule  applies 
only  to  such  organizations  as  towns,  churches,  and  the 
like,  and  not  to  stock  corporations,  finds  no  support  either 
in  reason  or  authority.  The  correct  distinction  is  be- 
tween a  corporate  act  to  be  done  by  a  select  body,  of  a 
definite  number,  as,  for  example,  a  board  of  directors  or 
trustees,  and  one  to  be  performed  by  the  constituent 
members  of  the  corporation.  In  the  latter  case  a  majority 
of  those  who  appear  may  act.  This  distinction  is  clearly 
made  in  several  of  the  cases  above  cited,  and  also  in  the 
leading  case  of  Rex  v.  Bellringer,  4  Term  R.  810.  As  was 
said  by  Lord  Mansfield,  in  Rex  v.  Varlo  (Coup  248) :  'It 
is  in  the  nature  of  all  corporations  to  do  corporate  acts ; 
and,  when  the  power  of  doing  them  is  not  specially  dele- 
gated to  a  particular  number,  the  general  mode  is  for 
the  members  to  meet  on  the  charter  days,  and  the  major 
part  who  are  present  to  do  the  act.  But,  when  there  is 
a  select  body,  it  is  a  different  thing,  for  then  it  is  a  special 
appointment.'  And,  this  being  so,  it  is  immaterial 
whether  the  number  present  is  only  one  or  more  than  one. 
It  was  held  in  Sharpe  v.  Dawes,  46  Law  J.  Q.  B.  104,  fol- 
lowed reluctantly  in  another  case,  that  one  person  can- 
not constitute  a  quorum;  that  at  least  two  persons  are 


1030  CORPORATIONS 

necessary  to  hold  a  corporate  meeting;  but  this  decision 
is  based  upon  a  narrow  lexicographical  definition  of  the 
word  'meeting,'  as  the  coming  together  of  two  or  more 
persons, — a  reason  that  does  not  commend  itself  to  our 
judgment. 

"  Therefore,  in  our  opinion,  the  Court  was  justified  in 
holding  that  the  election  of  directors  in  1881  was  regu- 
lar; and  it  follows  that  the  deeds  executed  in  1882  by 
Thayer,  the  president  elected  by  them,  were  the  deeds  of 
the  corporation." 

Question  670:  What  is  a  quorum  in  a  stockholders'  meeting 
where  there  is  no  express  regulation  ?  Would  the  same  hold  true 
of  a  directors' meeting?    Why? 

Case  No.  671.  In  re  Mathiason  M'f 'g  Co.,  122  Mo.  Ap. 
437. 

Bl/nd,  P.  J.:    "*     *     * 

"The  next  question  to  be  noticed  is,  should  the  motion 
of  H.  W.  Lammers,  to  set  aside  the  election  or  first  bal- 
lot and  take  a  new  ballot  for  three  directors,  have  been 
voted  upon  by  counting  the  number  of  shares  of  each 
voter,  or  by  a  rising  vote  and  count  by  the  head,  as  was 
done.     *     *     * 

"Cook,  in  his  volume  2  of  his  work  on  Corporations 
(5  Ed.),  Sec.  609,  says: 

"  'At  common  law,  in  public  or  municipal  corpora- 
tions, each  qualified  elector  has  one  vote,  and  only  one. 
This  was  a  natural  rule,  since  each  duly  qualified  citizen 
voted  as  a  citizen  and  not  as  the  holder  of  stock.  But 
the  same  rule  should  not  apply  to  private  corporations. 
Stockholders  are  interested  not  equally,  but  in  propor- 
tion to  the  number  of  shares  held  by  them.  Naturally 
and  reasonably  each  share  should  be  entitled  to  one  vote. 
It  has  been  held,  however,  that  at  common  law  each  stock- 
holder had  but  one  vote,  irrespective  of  the  number  of 
shares  held  by  him.  Where  the  statutes  are  silent  on  the 
subject,  a  by-law  may  give  to  each  shareholder  one  vote 


STOCKHOLDERS'  MEETINGS  1031 

for  each  share  up  to  ten,  and  may  fix  the  proportion  of 
votes  which  he  may  cast  in  excess  of  that  number. 

"  'Generally  the  charter  or  statutes  prescribe  that 
each  share  of  stock  shall  be  entitled  to  one  vote.  And  a 
statutory  or  charter  provision  to  this  effect  applies  not 
only  to  elections,  but  also  to  all  other  questions  that  may 
come  before  the  stockholders'  meetings.  An  election  to 
be  held  by  a  ''majority  of  stockholders"  means  a  major- 
ity in  interest.'  " 

Question  671:  The  M.  Corporation  has  7  shareholders.  A 
owns  60%  of  the  stock.    Can  he  outvote  the  other  6  shareholders  ? 

Case  No.  672.  Venner  v.  Chicago  City  Ry.  Co.,  258 
111.  5?3. 

Facts:  Venner,  as  stockholder  of  Chicago  City  Rail- 
way Company,  files  a  bill  for  the  purpose  of  having  de- 
clared void  a  certain  agreement  creating  a  voting  trust 
known  as  the  Chicago  City  and  Connecting  Railways 
Collateral  Trust  and  enjoining  the  trustees  from  voting 
any  stock  in  the  corporation. 

Point  Involved:  Whether  a  trust  among  stockholders 
in  a  corporation  whereby  they  transfer  their  stock  to 
trustees  as  their  proxies  to  vote  for  them  according  to  a 
trust  agreement,  is  valid. 

Me.  Justice  Dunn:  "*  *  *  The  stockholders  can 
control  the  affairs  of  a  corporation  only  through  the 
election  of  directors,  and  at  every  such  election  there  is 
necessarily  a  combination  of  shares  upon  the  persons 
elected.  Such  combination  may  be  made  at  the  time  of 
the  meeting,  but  there  is  no  reason  why  stockholders 
may  not  agree  beforehand  to  vote  for  certain  persons  as 
directors,  and  often  they  must  do  so  in  order  to  elect 
the  persons  desired.  There  is  nothing  in  the  law  to 
prevent  the  owners  of  a  majority  of  the  stock  from  giv- 
ing proxies  to  the  same  person.  Unless  restricted  by 
its  terms  or  by  some  statutory  provision  a  proxy  confers 
on  the  grantee  a  discretion,  unlimited  either  in  character 


1032  CORPORATIONS 

or  duration,  until  revoked.  A  majority  of  the  stock- 
holders may  therefore,  by  uniting  in  the  same  proxy, 
confer  upon  an  agent  unlimited  discretion  to  vote  their 
stock,  and  there  is  no  policy  of  the  law  to  prevent  their 
transferring  the  stock  to  a  trustee  with  the  like  unre- 
stricted power.  It  is  the  purpose  for  which  the  trust 
was  created  which  must  determine  its  legality.  Besides 
those  already  cited,  it  has  been  decided  in  the  following 
cases,  among  others,  that  the  pooling  of  stock  by  the 
owners  for  the  purpose  of  electing  directors  and  officers 
and  controlling  the  management  and  business  of  the 
corporation  was  not  against  public  policy  so  long  as  no 
fraud  was  committed  or  wrong  done  to  the  other  stock- 
holders: Ohio  &  Mississippi  Railroad  Co.  v.  State,  49 
Ohio  St.  668;  Griffith  v.  Jewett,  9  Ohio  Dec.  (Reprint) 
627;  Weber  v.  Delia  Mountain  Mining  Co.,  14  Idaho, 
404;  Mobile  &  Ohio  Railway  Co.  v.  Nichols,  98  Ala.  92; 
Hey  v.  Dolphin,  92  Hun,  230 ;  Havemeyer  v.  Havemeyer, 
43  Super.  Ct.  (N.  Y.)  506;  Brown  v.  Pacific  Mail  Steam- 
ship Co.,  5  Blatchf.  525.  On  the  other  hand,  an  agree- 
ment is  invalid  whose  object  is  not  the  benefit  of  all  the 
stockholders  equally,  but  is  some  unfair  advantage  to  the 
parties  to  it,  only,  as  where  one  of  the  parties  is  to  have 
a  certain  office  at  a  certain  salary,  or  the  parties  to  the 
agreement  are  to  receive  the  profits  to  be  made  out  of 
certain  contracts  to  be  entered  into  by  the  management 
under  their  direction,  or  the  stock  of  the  corporation  is 
to  be  voted  or  its  affairs  managed  by  the  determination 
of  persons  other  than  its  stockholders  or  by  a  minority 
of  its  own  stockholders.  (Guernsey  v.  Cook,  120  Mass. 
501 ;  Shepaug  Voting  Trust  Cases,  50  Conn.  553 ;  Kreissl 
v.  Distilling  Co.  of  America,  61  N.  J.  Eq.  50;  Cone  v. 
Russell,  48  Id.  208;  White  v.  Thomas  Inflatable  Tire  Co., 
52  Id.  178;  Morel  v.  Hoge,  130  Ga.  625;  Hafer  v.  New 
York,  Lake  Erie  &  Western  Railroad  Co.,  9  Ohio  Dec. 
[Reprint]  470.)  Many  of  the  cases  relied  upon  by  coun- 
sel for  the  appellant  are  of  this  character,  and  were 
founded  on  the  principle  that  the  owners  of  a  majority 
of  the  stock  have  no  right  to  use  their  power  to  advance 


STOCKHOLDERS'  MEETINGS  1033 

their  own  private  interests  at  the  expense  of  the  minor- 
ity. In  others  the  complaints  were  made  by  parties  to 
the  agreement  or  purchasers  from  parties  to  the  agree- 
ment, claiming  that  the  agreement  was  not  binding  upon 
them,  but  was  revocable  at  their  pleasure.  Cases  of  this 
kind  are  not  in  point,  for  the  appellant  is  not  a  party  to 
the  trust  agreement  and  cannot  complain  of  its  term 
unless  his  rights  as  a  stockholder  have  been  injuriously 
affected  by  it  or  will  necessarily  be  injuriously  affected.' ' 

Question  672:  (1.)  Is  a  voting  trust  among  stockholders  of 
a  corporation  valid? 

(2.)  If  the  stockholders  of  competing  firms  join  in  a  voting 
trust,  is  the  trust  legal  ? 

Case  No.  673.    In  re  Barker,  6  Wend.  (N.  Y.)  509. 

Facts:    The  report  reads  as  follows: 

"An  election  of  directors  of  the  Mercantile  Insurance 
Company  of  New  York  was  holden  on  the  10th  of  Jan- 
uary, 1831.  Jacob  Barker  demanded  to  vote  on  1,290 
shares  of  stock  standing  in  his  name  on  the  books  of  the 
company,  1,255  in  his  own  right  and  35  as  trustee  for 
his  minor  children.  His  vote  was  challenged,  and  the 
challenge  allowed  by  the  inspectors.  Had  he  been  per- 
mitted to  vote  on  the  whole  number  of  shares  standing 
in  his  name,  Samuel  Hazard,  and  six  other  persons 
named  in  the  proceedings,  who  the  inspectors  certified 
were  duly  elected,  would  not  have  been  elected,  but 
seven  other  persons,  for  whom  Jacob  Barker  offered  to 
vote,  would  have  been  elected  in  their  stead ;  or  had  he 
been  permitted  to  vote  only  on  the  thirty-five  shares  held 
by  him  as  trustee,  the  effect  would  have  been  to  have 
given  a  majority  of  votes  to  four  individuals,  who  were 
voted  for  at  the  election  as  directors,  and  who  were  not 
returned  as  elected  over  Samuel  Hazard  and  five  other 
persons,  who  had  an  equal  number  of  votes,  and  who 
were  returned  duly  elected.  The  objection  to  Barker's 
voting  on  the  1,255  shares  was  that  they  were  hypothe- 
cated to  the  company  to  their  full  value.  The  company 
was  incorporated  in  1818.     This  case  also  presented  the 


1034  CORPORATIONS 

question  whether  an  alien  stockholder  of  this  company 
has  the  right  to  vote  by  proxy:  such  vote  having  been 
offered,  and  rejected  by  the  inspectors." 

By  the  court,  Savage,  Ch.  J.:  "In  the  case  Ex  parte 
Holmes,  5  Cowen,  426,  we  set  aside  an  election  of 
directors  of  an  insurance  company,  because  a  trustee  had 
been  allowed  to  vote  upon  stock  belonging  to  the  com- 
pany; not  because  a  trustee  had  been  permitted  to  vote 
instead  of  the  cestui  que  trust,  but  for  the  reason  that 
the  stock  in  that  case  could  not  be  voted  upon,  being  the 
property  of  the  company,  controlled  by  its  officers;  and 
we  held,  that  neither  within  the  meaning  of  the  charter 
of  the  company,  nor  of  the  act  under  which  the  proceed- 
ings were  had,  could  it  be  tolerated,  that  the  officers  of 
a  moneyed  institution  should  wield  such  stock,  however 
obtained,  to  control  the  result  of  an  election  of  directors. 
Such  is  the  principle  settled  by  that  case,  and  what  was 
said  in  relation  to  the  rights  of  a  trustee  or  cestui  que 
trust  to  vote  on  stock,  standing  in  the  name  of  the  trus- 
tee, either  generally  or  specially,  in  his  representative 
character,  was  said  in  reference  to  the  peculiar  circum- 
stances of  the  case.  The  court  never  could  have  doubted 
the  right  of  a  person  to  vote  upon  stock  standing  in  his 
name  although  held  by  him  in  trust  for  another;  the 
legal  estate  is  in  him,  and  until  divested  by  assignment, 
either  voluntary  or  compulsory,  he  is  the  only  person 
entitled  to  vote.  Indeed,  the  case  Ex  parte  Holmes, 
admits  that  if  the  stock  stands  in  the  name  of  the  trustee 
without  expressing  any  trust,  he  has  the  right  to  vote. 
Jacob  Barker,  therefore,  was  entitled  to  vote  upon  the 
thirty-five  shares  holden  by  him  as  the  trustee  of  his 
minor  children. 

"He  was  also  entitled  to  vote  upon  the  1,255  shares 
standing  in  his  name  in  his  own  right,  although  they  were 
hypothecated  to  their  full  value.  So  was  the  decision  of 
the  court  in  Ex  parte  Wilcocks,  7  Cowen,  402,  where  we 
held,  that  until  the  pledge  was  enforced  and  the  title 
made  absolute  in  the  pledgee,  and  the  names  changed  on 
the  books,  the  pledgor  should  be  permitted  to  vote. ' ' 


STOCKHOLDERS'  MEETINGS  1035 

Question  673:  (1.)  A  owning  certain  certificates  of  stock 
by  will  bequeaths  them  to  B  in  trust  for  C,  D,  and  E,  who  are 
A's  unmarried  sisters.  B  has  certificates  made  out  to  him  as 
trustee.  Who  can  vote  this  stock?  (The  trust  in  this  case  is 
not  a  voting  trust.) 

(2.)     If  stock  is  pledged,  can  the  pledgor  or  pledgee  vote  it? 

(3.)     If  a  corporation  owns  its  own  stock,  can  it  vote  it? 

Case  No.  674.  Market  Street  R.  Co.  v.  Hellman,  109 
Cal.  571. 

Facts:  Proceeding  to  contest  the  consolidation  of  cer- 
tain corporations.  Among  many  other  points  made,  the 
objection  was  raised  that  appears  in  the  following  opin- 
ion: 

Seables,  Chancellor:    "*     *    * 

"In  the  case  of  the  Omnibus  Cable  Company,  1,470 
of  its  shares  were  owned  by,  and  stood  in  the  name  of 
Daniel  Stein,  who  died,  say,  six  months  before  the  con- 
sent was  signed  by  his  executors,  and  as  the  stock  was 
never  transferred  on  the  books  to  the  names  of  such 
executors  it  is  contended  they  were  not  authorized  to 
consent.  'The  shares  of  stock  of  an  estate  of  a  minor 
or  insane  person  may  be  represented  by  his  guardian, 
and  of  a  deceased  person  by  his  executor  or  administra- 
tor.'    (Civ.  Code,  Sec.  313.) 

"No  transfer  of  the  stock  to  the  executors  was  neces- 
sary to  entitle  them  to  vote  it.  Spelling  on  Corpora- 
tions, at  Sec.  380,  says :  'In  case  of  the  death  of  a  stock- 
holder his  administrator  becomes,  by  operation  of  law, 
vested  with  the  legal  title  to  the  stock,  and  is  entitled  to 
vote  it  at  all  elections  without  a  transfer  upon  the  stock- 
book,  *  *  *  and  the  fact  that  the  decedent  held  the 
stock  subject  to  a  trust  would  not  alter  it.  Upon  the 
death  of  a  trustee  of  personal  property  the  trust  would 
devolve  upon  his  representative,  and  he  becomes  legal 
owner  as  to  all  persons  except  the  cestui  que  trust,  and 
the  corporation  has  nothing  to  do  with  the  equities 
between  the  immediate  parties  to  the  trust  or  between 
the  legal  owner  and  third  parties,  as  regards  the  rights 


1036  CORPORATIONS 

of  voting.'     (See  cases  cited  by  same  author  in  footnote 
to  Sec.  380.)" 

Question  674:  Can  an  executor  vote  stock  owned  by  him  as 
such  executor?  Suppose  that  upon  the  books  the  stock  still 
stands  in  the  name  of  the  deceased,  but  the  executor  brings  in 
ample  proof  of  his  appointment  and  qualification  as  such  exec- 
utor, can  he  vote  the  stock? 

Case  No.  675.  J.  H.  Wentworth  Co.  v.  French,  176 
Mass.  442. 

Holmes,  C.  J.:  "This  is  a  petition  for  a  writ  of 
mandamus  declaring  that  Benjamin  Dickerman,  George 
W.  Dickerman,  and  Charles  W.  Boynton  are  the  duly 
elected  directors,  and  that  Benjamin  Dickerman  is  the 
duly  elected  treasurer  and  clerk,  of  the  petitioning  cor- 
poration. Benjamin  Dickerman  is  the  holder  of  a  cer- 
tificate for  100  shares  of  stock  in  the  company,  which 
states  on  its  face  that  it  is  'held  as  collateral  for  the 
note  of  James  H.  Wentworth  for  $10,000,  dated  April  8, 
1898. '  There  has  been  no  breach  of  the  conditions  of 
the  pledge.  If  Benjamin  Dickerman  had  the  right  to 
vote  on  these  shares,  then  the  persons  named  have  been 
elected  directors,  treasurer  and  clerk,  and,  subject  to  cer- 
tain questions  to  be  dealt  with,  a  peremptory  writ  ought 
to  issue,  as  in  American  Eailway-Frog  Co.  v.  Haven, 
101  Mass.  398;  otherwise  the  petition  should  be  dis- 
missed. 

"The  corporation  has  to  go  by  its  record  in  determin- 
ing the  right  to  vote,  and  therefore,  if  a  certificate  of 
stock  shows  a  certain  person  to  be  a  member,  the  corpo- 
ration must  recognize  him  as  member,  with  the  right  to 
vote  as  an  incident  to  his  membership.  Crease  v.  Bab- 
cock,  10  Met.  525,  546.  National  Bank  v.  Case,  99  IT.  S. 
628,  631.  Adderly  v.  Storm,  6  Hill,  624,  627.  Franklin 
Bank  v.  Commercial  Bank,  36  Ohio  St.  350,  355.  Magru- 
der  v.  Colston,  44  Md.  349,  356.  Commonwealth  v.  Dal- 
zell,  152  Penn.  St.  217,  223.  If  the  certificate  holder  is 
a  pledgee,  it  may  be  that  before  breach  the  pledgor  will 


STOCKHOLDERS'  MEETINGS  1037 

be  recognized  in  equity  as  the  general  owner  for  the  pur- 
pose of  voting  as  for  other  purposes.  But  in  such  cases 
the  result  ,has  been  worked  out  by  compelling  the  holder 
to  give  a  proxy  to  the  pledgor,  and  thus  the  conclusive- 
ness of  the  record  for  corporate  purposes  has  been  left 
unimpaired.  Vowell  v.  Thompson,  3  Cranch  C.  C.  428. 
Hoppin  v.  Buffum,  9  E.  I.  513,  518. 

' '  The  provision  in  Pub.  Sts.  c.  105,  Sec.  25,  by  which  a 
certificate  of  stock  issued  as  a  pledge  or  the  like  shall 
express  the  fact  and  the  name  of  the  pledgor  'who  alone 
shall  be  responsible  as  a  stockholder, '  goes  back  through 
Gen.  Sts.  c.  68,  Sec.  13,  to  St.  1838.  c.  98,  Sec.  3,  and,  it 
would  seem,  may  have  been  suggested  by  the  case  o*f 
Crease  v.  Babcock,  as  the  bill  in  that  case  was  brought  in 
1837.  When  the  requirements  of  that  section  are  com- 
plied with,  the  form  of  the  certificate  allows  the  pledgor 
to  be  recognized  as  the  member  of  the  corporation  for 
the  purpose  of  voting  as  well  as  for  the  purpose  of  fixing 
responsibility,  and  under  such  circumstances  the  gen- 
eral understanding  is  that  he  is  the  proper  person  to 
vote.  The  statute  in  a  different  way  reaches  the  result 
which  equity  reached  by  compelling  the  pledgee  to  give 
a  proxy." 

(The  Court  holds  that  the  statute  of  Massachusetts  by 
which  the  right  of  vote  is  put  in  the  pledgor  has  not  been 
complied  with  and  as  the  pledgee  was  the  record  stock- 
holder he  had  a  right  to  vote.) 

Case  No.  676.  Kinnan  v.  Sullivan  Co.  Club,  50  N.  T. 
Suppl.  95. 

Rumsey,  J. :  The  corporation  has  no  power,  by  its  by- 
laws, to  refuse  to  permit  a  delinquent  stockholder  to  vote 
upon  its  stock  than  it  has  to  refuse  him  the  privilege  of 
making  a  transfer  of  the  stock.  The  right  to  vote  upon 
stock  of  a  corporation  is  essential  for  the  protection  of 
its  owner.  It  is  one  of  those  inherent  rights  which  goes 
with  the  purchase  of  the  stock,  and,  unless  it  is  limited 
by  the  articles  of  association,  which  authorized  the  cor- 


1038  CORPORATIONS 

poration  to  exclude  from  the  right  of  voting  a  person 
who  is  in  arrears  upon  his  stock,  the  right  does  not  exist. 
It  cannot  be  arrogated  by  the  corporation  to  itself  after 
the  stock  has  been  issued.  It  makes  no  difference,  in  this 
regard,  whether  the  stockholder  agrees  to  take  the  stock 
subject  to  the  by-laws  of  the  corporation  or  not.  No 
by-law  can  be  made  which  takes  away  from  a  stock- 
holder a  right  which  is  vested  in  him  at  the  time  of  the 
purchase  of  his  stock. 

Question  676:  May  a  corporation  deprive  a  stockholder  of 
his  voting  power  because  he  is  delinquent?  Suppose  he  has 
subscribed  to  abide  by  the  by-laws,  and  a  by-law  is  subsequently 
passed  attempting  to  deprive  him  of  his  voting  power,  is  the 
by-law  binding  on  him?  What  if  the  by-law  were  already  in 
force  when  he  became  a  stockholder? 

Sec.  501.    Dividends. 

Case  No.  677.    Goodwin  v.  Hardy,  57  Me.  143. 

Point  Involved:  To  whom  dividends  belong  as  be- 
tween owners  of  stock  when  dividend  is  declared  and 
owner  of  stock  when  dividend  is  payable. 

Appleton,  C.  J. :  "*  *  *  The  stockholders  have 
no  claim  to  a  dividend  until  it  is  declared.  Until  that 
time,  it  belongs  to  the  corporation  precisely  as  any  other 
property  it  may  own.  When  a  distribution  of  the  funds 
of  a  corporation,  whether  of  the  whole  or  of  a  part,  is 
ordered,  it  is  to  be  made  between  those  who,  at  that  time, 
are  the  owners  of  its  stock.  The  law  on  this  subject  is 
very  clearly  stated  by  Mr.  Justice  Sargent,  in  March  v. 
Eastern  E.  E.  Co.,  43  N.  H.  520.  'The  purchaser  of  a 
share  of  a  stock  in  a  corporation,'  he  remarks,  'takes 
the  share  with  all  its  incidents,  and  among  these  is  the 
right  to  receive  all  future  dividends, — that  is,  its  pro- 
portional share  of  all  profits  not  then  divided,  and  as 
we  understand  the  law  and  the  usage  of  such  corpora- 
tions, it  is  wholly  immaterial  at  what  times  and  from 


DIVIDENDS  1039 

what  sources  these  profits  have  been  earned;  they  are 
incident  to  the  share,  to  which  a  purchaser  becomes  at 
once  entitled,  provided  he  remains  a  member  of  the 
corporation  until  a  dividend  is  made.'     *     *     *" 

Question  677:  The  M  corporation  has  on  May  20th  undivided 
profits  sufficient  to  declare  a  7%  dividend.  A  is  owner  of  stock 
in  M  corporation.  He  sells  it  to  B  on  May  20th.  On  May  21st  the 
corporation  declares  a  dividend.  The  dividend  is  by  its  terms 
made  payable  July  1st.  On  June  1st  B  sells  to  C,  who  owns 
until  after  July  1st.    Who  is  entitled  to  the  dividend? 

Sec.  502.    Right  to  Prevent  Ultra  Vires  Acts  and  to  Sue 
or  Defend  in  Behalf  of  Corporation. 

Case  No.  678.    Hawes  v.  Oakland,  104  U.  S.  450. 

Facts:  Complainant  files  his  bill  as  a  stockholder  of 
the  Contra  Costa  Water  Works  Company  against  such 
company,  the  city  of  Oakland,  and  the  directors,  alleging 
that  the  company  is  furnishing  the  city  of  Oakland  with 
water  for  all  purposes  free  of  charge  whereas  by  its 
charter  it  is  only  required  to  furnish  such  city  water 
free  for  putting  out  fires  and  other  cases  of  emergency, 
that  he  has  applied  to  the  directors  to  stop  this  abuse 
and  that  they  decline  to  take  any  action.  The  company 
defends  by  demurrer  that  the  plaintiff  as  stockholder  has 
no  power  to  maintain  such  a  suit. 

Point  Involved:  Whether  a  stockholder  can  file  a  bill 
to  prevent  ultra  vires  acts ;  what  conditions  are  precedent 
to  his  maintaining  such  bill. 

Mb.  Justice  Miller  :    "*     *     * 

"We  understand  that  doctrine  to  be  that  to  enable  a 
stockholder  in  a  corporation  to  sustain  in  a  court  of 
equity  in  his  own  name,  a  suit  founded  on  a  right  of  action 
existing  in  the  corporation  itself,  and  in  which  the  cor- 
poration is  the  appropriate  plaintiff,  there  must  exist 
as  the  foundation  of  the  suit — some  action,  or  threat- 
ened  action   of  the  managing  board   of   directors,   or 


1040  CORPORATIONS 

trustees  of  the  corporation  which  is  beyond  the  authority 
conferred  on  them  by  their  charter  or  other  source  of 
organization;  or  such  fraudulent  transaction  completed 
or  contemplated  by  the  acting  managers,  in  connection 
with  some  other  party  or  among  themselves,  or  with 
other  shareholders  as  will  result  in  serious  injury  to 
the  corporation ;  or  to  the  interests  of  other  shareholders ; 
or  where  the  board  of  directors  or  a  majority  of  them, 
are  acting  for  their  own  interests,  in  a  manner  destruc- 
tive of  the  corporation  itself,  or  of  the  rights  of  the 
other  shareholders ;  or  where  the  majority  of  sharehold- 
ers themselves  are  oppressively  and  illegally  pursuing 
a  course  in  the  name  of  the  corporation,  which  is  in 
violation  of  the  rights  of  the  other  shareholders,  and 
which  can  only  be  restrained  by  the  aid  of  a  court  of 
equity.  Possibly  other  cases  may  arise  in  which,  to  pre- 
vent irremediable  injury,  or  a  total  failure  of  justice, 
the  Court  would  be  justified  in  exercising  its  powers,  but 
the  foregoing  may  be  regarded  as  an  outline  of  the  prin- 
ciples which  govern  this  class  of  cases  *  *  *  He  must 
make  an  earnest,  not  a  simulated  effort,  with  the  man- 
aging body  of  the  corporation,  to  induce  remedial  action 
on  their  part,  and  this  must  be  made  apparent  to  the 
Court.' ' 

[The  Court  holds  that  a  stockholder  before  filing  such 
a  bill  must  attempt  to  get  relief  from  the  directors  and 
if  possible  from  the  stockholders,  and  that  his  efforts  are 
unavailing,  and  that  the  complainant  in  this  case  has 
made  no  such  effort  as  is  required  to  give  him  standing 
to  file  a  bill.] 

Question  678:  (1.)  When  can  a  stockholder  sue  or  defend 
in  behalf  of  the  corporation  ?  v 

(2.)  "What  course  must  the  stockholder  take  to  entitle  him 
to  represent  the  corporation  in  such  a  suit? 

(3.)  A  filed  a  bill  showing  that  the  corporation  in  which  he 
was  a  stockholder  was  about  to  enter  into  an  illegal  trust,  and 
asked  for  an  injunction.  Will  it  be  granted  ?  (Harding  v.  Amer. 
Glucose  Co.,  182  111.  551.) 


RIGHT  TO  SUE  FOR  CORPORATION  1041 

Case  No.  679.    Babcock  v.  Farwell,  245  111.  41. 

Mr.  Justice  Dunn:    "*     *     * 

1 1  Since  Babcock  could  not  himself  have  maintained  the 
suit  in  his  personal  capacity,  neither  could  his  executor, 
nor  appellant  as  his  legatee.  By  expressly  waiving  his 
objections  to  the  transactions  now  complained  of,  he  de- 
barred himself  from  seeking  relief  against  them  in  his 
own  right.  He  could  not,  therefore,  indirectly  obtain 
such  relief  by  bringing  suit  in  the  right  of  the  corpora- 
tion or  of  other  stockholders.  A  complainant  cannot 
maintain  a  bill,  and  obtain  relief  unless  he  has  himself 
sustained  a  wrong.  The  theory  of  a  stockholder 's  suit  is, 
that  the  stockholder  has  sustained  a  wrong  through  the 
injurious  effect  upon  his  stock  of  the  wrong  done  to  the 
corporation.  If  he  has  himself  consented  to  or  partici- 
pated in  the  acts  constituting  such  wrong,  or  has  waived 
his  right  to  object  to  them,  he  cannot  afterwards  maintain 
a  bill,  on  account  of  such  transactions,  for  the  benefit  of 
the  corporation  or  of  other  stockholders.  (Burt  v.  Brit- 
ish Ass'n.,  4  DeG.  &  J.  158;  Brown  v.  DeYoung,  167  111. 
549;  Wells  v.  Northern  Trust  Co.,  195  id.  288.)  Neither 
can  an  assignee  of  stock  maintain  a  suit  in  regard  to 
transactions  with  the  corporation  done  or  assented  to  by 
his  assignor.  The  purchaser  of  shares  of  stock  requires 
no  greater  rights  than  his  vendor.  He  holds  by  the 
same  title  and  subject  to  the  same  liability.  Shares  of 
stock  are  merely  choses  in  action,  and  the  successive 
owners  acquire  only  the  rights  held  by  their  predecessors 
in  title.  Home  Ins.  Co.  v.  Barber,  67  Neb.  644;  Venner 
v.  Atchison,  Topeka  and  Santa  Fe  Eailroad  Co.,  28  Fed. 
Rep.  581;  Church  v.  Citizen's  Railroad  Co.,  78  id.  526; 


Question  679:  A,  as  stockholder  in  the  M  corporation,  ac- 
quiesces in  wrongful  conduct  on  the  part  of  the  directors  in 
managing  the  corporation.  A  assigns  to  B,  who  then  for  the  first 
time  learns  of  the  ultra  vires  acts,  and  files  a  bill  to  set  aside 
the  acts.    Will  such  bill  obtain  relief? 


1042  CORPORATIONS 

Sec.  503.    Right  to  Inspect  Corporate  Books  and  Records. 

Case  No.  680.  Venner  v.  Chicago  City  Ey.  Co.,  246  HI. 
170. 

Mr.  Chief  Justice  Vickers:  "*  *  * 
4 'There  is  a  well  recognized  distinction  between  the 
right  of  a  stockholder  to  inspect  the  books  and  papers  of 
a  corporation  under  the  common  law  and  an  unlimited 
right  given  by  statute.  Under  the  former  the  examina- 
tion can  only  be  compelled  where  the  stockholder  asks 
it  in  good  faith  and  for  reasons  connected  with  his  rights 
as  stockholder.  Where  the  right  is  conferred  by  stat- 
ute in  absolute  terms,  the  purpose  or  motive  of  the 
stockholder  in  making  the  demand  for  an  inspection  is 
not  material  and  he  cannot  be  required  to  state  his  rea- 
sons therefor.  (Thompson  on  Corporations, — 2d  ed. — 
Sec.  4516.)  The  weight  of  American  authority  is  to  the 
effect  that  where  the  right  is  statutory  the  stockholder 
need  not  aver  or  show  the  object  of  his  inspection,  and 
it  is  no  defense  under  a  statute  granting  the  absolute 
right  to  inspection  to  allege  improper  purposes  or  that 
the  petitioner  desires  the  information  for  the  purpose 
of  injuring  the  business  of  the  corporation.  A  clear 
legal  right  given  by  a  statute  cannot  be  defeated  by  show- 
ing an  improper  motive.  If  this  were  so,  the  stockholder 
would  be  driven  from  a  certain  definite  right  given  him 
by  the  statute  to  the  realm  of  uncertainty  and  specu- 
lation.' ' 

Question  680:     (1.)     To  what  extent  did  the  common  law 
give  a  stockholder  a  right  to  inspect  corporate  records  ? 
(2.)     What  is  the  right  by  statute  ?    Do  the  two  differ  ? 

Sec.  504.   Right  to  Contract  and  Deal  With  Corporation. 

(Note:  See  the  remarks  of  Justice  Miller  in  Twin  Lick  Oil 
Co.  v.  Marbury,  91  U.  S.  587,  post,  Case  No.  684.  A  stock- 
holder has  the  same  right  as  a  stranger  to  contract  with  the  cor- 
poration. In  doing  so,  he  may  take  security  on  the  property  of 
the  corporation,  and  afterwards  enforce  such  security  as  any 
stranger  might.  He  may  sue  and  get  judgment  against  the  cor- 
poration and  levy  an  execution  against  its  property.) 


PART    XXVIII 

DIRECTORS    AND    ADMINISTRATIVE    OFFICERS 

Chapter  Ninety-eight.      Directors. 

Chapter  Ninety-nine.       Administrative  Officers. 

CHAPTER    NINETY. EIGHT 
DIRECTORS 

§505.  Election  and  qualification  of       §508.  Director  a  trustee;  his  liabil- 

directors.  ity  to  the  corporation. 

§  506.  Title  to  office ;  contest.  §  509.  Liability  of  director  to  third 

§  507.  Directors'  meetings.  persons. 

Sec.  505.    Election  and  Qualification  of  Directors. 

Case  No.  681.    Wight  v.  R.  Co?,  117  Mass.  226. 

Gray,  C.  J.:  " Although  the  directors  of  a  railroad 
corporation  are  usually  chosen  by  the  stockholders  from 
their  own  number,  there  is  no  rule  of  law  that  makes 
the  holding  of  stock  an  indispensable  qualification  of  a 
director,  unless  prescribed  by  some  act  of  the  legislature 
or  by-law  of  the  corporation. 

Question  681:    May  one  not  a  stockholder  be  a  director? 

(Note :  It  is  usual  of  course,  to  require  that  a  stockholder  be 
a  director,  but  in  the  absence  of  statutory  provisions,  or  charter  or 
by-law  requirement,  a  director  need  not  be  a  stockholder.) 

1043 


1044  CORPORATIONS 

Case  No.  682.    Com.  v.  Hemingway,  7  L.  E.  A.  (Pa.) 
360. 

Williams,  J.,  delivered  the  opinion  of  the  Court: 
"In  the  case  of  Detwiller  v.  Com.,  ante,  p.  357,  in  which 
an  opinion  has  been  filed  at  the  present  term,  we  have 
considered  the  question:  'Can  a  citizen  of  the  United 
States,  who  is  not  a  citizen  of  Pennsylvania,  become  a 
stockholder  in  the  Farmers  &  Mechanics  Institute  of 
Northampton  County?'  We  are  now  to  push  our  inqui- 
ries one  step  further,  and  determine  whether  one  who  is 
not  a  citizen  of  the  United  States,  but  is,  and  for  many 
years  has  been,  a  resident  and  property  holder  in  Penn- 
sylvania and  in  Northampton  County,  can  become  a  stock- 
holder in  the  same  association;  and  whether,  if  he  may 
become  a  stockholder,  he  is  entitled  to  vote  as  such  at  the 
stockholders'  meetings;  and  finally,  whether  he  may  be 
legally  elected  a  director  of  the  association.  For  the 
reasons  given  in  Detwiller  v.  Com.,  supra,  we  think  he 
may  become  a  stockholder.  The  stock  being  personal 
property,  he  may  acquire  it  by  gift  or  purchase.  An  alien 
could  at  common  law  buy  personal  goods,  and  sell  them ; 
and,  except  in  the  case  of  an  alien  enemy,  there  was  no 
restriction  upon  trade  with  aliens.  If  he  can  acquire  the 
stock,  he  can  acquire  with  it  all  the  rights  and  privileges 
which  its  ownership  confers,  among  which  is  the  right  to 
have  a  voice  in  the  control  of  the  enterprise,  and  the  selec- 
tion of  those  who  are  to  conduct  its  affairs.  He  may 
therefore  vote  in  the  same  manner,  and  with  the  same 
effect,  as  any  other  stockholder  may  do.  Why  may  he 
not  become  a  director?    The  office  is  not  a  political  one. 

Question  682:    May  an  alien  be  a  stockholder?  a  director? 

.  (Note :  A  stockholder  may  by  the  laws  of  all  states  be  a  non- 
resident or  an  alien.  Ordinarily  by  by-law  or  statute  a  director 
must  be  a  stockholder  and  a  resident  of  the  state. ) 

Sec.  506.    Title  to  Office;  Contest. 

(Note:    A  director's  title  to  his  office  may  be  contested  in  the 
courts.    The  usual  action  is  an  action  in  a  court  of  law  (as  dis- 


DIRECTORS  1045 

tinguished  from  a  court  of  equity)  by  quo  warranto  proceed- 
ings. But  a  court  of  equity  will  take  jurisdiction  when  the 
affairs  of  the  corporation  are  in  such  condition  by  reason  of  the 
contest  that  immediate  control  by  receivership  or  injunction  or 
otherwise  is  necessary.) 

Sec.  507.    Directors'  Meetings. 

Case  No.  683.  Doernbecher  v.  Columbia  City  Lumber 
Co.  et  al.,  21  Oregon,  573. 

Facts:    The  facts  are  stated  in  the  opinion. 

Point  Involved:  Whether  a  directors'  meeting  held 
without  notice  to  all  the  directors  (and  not  participated 
in  by  all  the  directors  notwithstanding  such  lack  of 
notice)  is  void,  where  a  majority  of  the  directors  attend 
and  such  majority  all  vote  in  favor  of  the  act  in  question. 

Bean,  J.:    "*     *     * 

1 '  The  company  being  largely  indebted  to  William  Lowe 
prior  to  the  fourteenth  day  of  May,  1889,  Lowe  assigned 
his  claim  to  plaintiff,  who  on  that  day  duly  commenced 
an  action  against  the  company  to  recover  the  amount 
due  thereon,  which  finally  resulted  in  a  judgment  in 
plaintiff's  favor.  After  the  commencement  of  this  action 
and  before  final  judgment,  Directors  Dunbar,  Wallace, 
and  McDougall  without  any  notice  to  the  other  directors, 
assembled  by  mutual  consent  at  the  office  of  Emmons  & 
Emmons  in  the  city  of  Portland,  and  pretended  to  pass  a 
resolution  authorizing  the  president  and  secretary  of  the 
company  to  assign  all  its  property  to  R.  W.  Emmons  for 
the  benefit  of  its  creditors,  after  which  a  deed  of  assign- 
ment was  executed  in  due  form.  It  is  claimed  by  plain- 
tiff that  the  proceedings  of  this  meeting  are  illegal  and 
void,  because  it  was  convened  without  notice,  verbal  or 
written,  to  the  directors  who  did  not  attend ;  and  in  this 
we  think  he  is  abundantly  supported  both  by  reason  and 
authority. 

^It  is  indispensable  to  a  legal  meeting  of  the  directors 
of  a  corporation  for  the  transaction  of  business,  that  all 


1046  CORPORATIONS 

the  directors  have  notice,  actual  or  constructive,  of  the 
time  and  place  of  the  meetings.  Otherwise,  it  might  hap- 
pen that  a  bare  majority  of  the  quorum  present  being  a 
minority  of  the  whole,  would  do  some  act  contrary  and 
in  opposition  to  the  will  of  the  majority.  The  stock- 
holders and  other  persons  interested  in  the  corporation 
are  entitled  to  the  combined  wisdom  of  all  the  directors. 
Where  the  time  and  place  has  not  been  fixed  by  some 
other  competent  authority,  such  meetings  must  be  called 
by  personal  notice  to  each  member  of  the  board  of  di- 
rectors. 'It  is  not  only  a  plain  dictate  of  reason,'  says 
Mr.  Justice  Cowan,  'but  a  general  rule  of  law,  that  no 
power  or  function  entrusted  to  a  body  consisting  of  a 
number  of  persons,  can  be  legally  exercised  without  no- 
tice to  all  the  members  composing  such  body.'  (People  v. 
Batchellor,  22  N.  Y.  134.)  And  this  is  so  for  the  transac- 
tion of  even  ordinary  business. 

' '  It  is  no  excuse  to  say  that  the  three  who  were  present 
all  voted  for  the  resolution,  and  had  the  other  two  been 
present  the  result  would  have  been  the  same.  The  right 
to  deliberate,  and  by  their  advice  and  counsel  convince 
their  associates,  if  possible,  is  the  right  of  the  minority, 
of  which  they  cannot  be  deprived  by  the  arbitrary  will  of 
the  majority.    (Com.  v.  Cullen,  13  Pa.  St.  133.) 

"All  persons  interested  in  the  corporation  are  entitled 
to  the  advice  and  influence  as  well  as  the  votes  of  all  the 
directors.  And,  says  Mr.  Morawetz,  'while  it  may  not  be 
the  duty  of  every  director  to  be  present  at  every  meeting 
of  the  board,  yet  it  is  certainly  the  intention  of  the  share- 
holders that  every  director  shall  have  a  right  to  be  pres- 
ent at  every  meeting,  in  order  to  acquire  full  information 
concerning  the  affairs  of  the  corporation  and  to  give  the 
other  directors  the  benefit  of  his  judgment  and  advice. 
If  meetings  could  be  held  by  a  bare  quorum  without  noti- 
fying the  other  directors,  the  majority  might  virtually 
exclude  the  minority  from  all  participation  in  the  man- 
agement of  the  company.'    (Morawetz  Corp.  Sec.  532.) 

"Where  the  meeting  is  a  general  or  stated  one,  pro- 
vided for  in  some  resolution  or  by-law,  notice  of  the  time 


DIRECTORS  1047 

and  place  of  the  meeting  is  perhaps,  in  the  absence  of 
a  different  provision  in  the  charter  or  by-laws  of  the  com- 
pany, not  necessary.  (State  ex  rel.  v.  Bonnell,  35  Ohio 
St.  10 ;  People  v.  Batchellor,  supra;  Merritt  v.  Ferris,  22 
111.  303;  Warner  v.  Mower,  11  Vt.  385.)  In  such  case 
each  member  is  presumed  to  have  notice  of  the  day  fixed 
for  the  meeting.  But  if  the  meeting  be  a  special  one, 
personal  notice,  if  practicable,  is  necessary  to  each  mem- 
ber unless  all  are  present  and  participate  in  the  pro- 
ceedings. And  such  notice  is  essential  to  the  power  of  the 
board  to  do  any  act  which  will  bind  the  corporation,  and 
without  such  notice  or  the  presence  of  all  the  directors  its 
acts  are  void. ' ' 

Question  683:  Is  a  notice  of  a  directors'  special  meeting 
necessary  ?  If  no  notice  is  given  and  a  majority  of  the  directors 
attend  and  vote  for  the  act  in  question,  why  is  it  material  that 
the  other  directors  are  not  notified? 

(Note :  A  majority  of  the  directors  is  a  quorum  (in  the  ab- 
sence of  express  provision  otherwise)  if  the  meeting  is  properly 
called  and  noticed ;  and  a  majority  of  the  quorum  may  transact 
business.  Thus  it  is  possible  for  two  out  of  five  directors  to  pass 
resolutions.) 

Sec.  508.    Director  a  Trustee;  His  Liability  to  the 
Corporation. 

Case  No.  684.     Twin  Lick  Oil  Co.  v.  Marbury,  91  U.  S. 

587. 

Facts:  Marbury  was  a  stockholder  and  a  director  in 
the  complainant  corporation.  The  corporation  became 
embarrassed  in  1867  and  borrowed  $2,000  from  Marbury, 
for  which  a  note  was  given  secured  by  mortgage  on  all 
of  the  property  of  the  corporation.  The  property  was 
sold  under  the  terms  of  the  mortgage  to  effectuate  the 
security,  and  was  bought  in  by  defendant  Marbury.  This 
bill  is  filed  four  years  later  to  have  Marbury  declared  a 
trustee  of  such  property  and  for  an  accounting  of  the 
rents  and  profits.    The  bill  charges  that  defendant  abused 


1048  CORPORATIONS 

his  trust  relation  to  the  company  to  take  advantage  of 
its  difficulties  and  to  buy  its  property  at  a  sacrifice,  con- 
cealing material  facts.  The  Court  finds  from  the  evi- 
dence that  defendant  loaned  the  money  in  good  faith, 
and  honestly  for  the  assistance  of  the  company,  and  took 
reasonable  security,  and  that  when  the  money  was  due 
there  was  no  prospect  of  it  being  paid  and  the  property 
was  then  sold,  as  the  only  means  whereby  defendant  could 
get  back  his  money,  and  that  defendant  took  no  advantage 
of  his  position  and  made  no  concealment. 

Point  Involved:  Whether  a  contract  by  a  director  with 
a  corporation  is  voidable  or  void ;  whether  laches  will  bar 
a  suit  by  the  corporation  (or  its  stockholders)  to  set  aside 
a  voidable  contract  by  a  director. 

Mr.  Justice  Millee  :    "*     *     * 

"The  first  question  which  arises  in  this  state  of  the 
facts  is,  whether  defendant's  purchase  was  absolutely 
void. 

"That  a  director  of  a  joint-stock  corporation  occupies 
one  of  those  fiduciary  relations  where  his  dealings  with 
the  subject-matter  of  his  trust  or  agency,  and  with  the 
beneficiary  or  party  whose  interest  is  confided  to  his  care, 
is  viewed  with  jealousy  by  the  courts,  and  may  be  set 
aside  on  slight  grounds,  is  a  doctrine  founded  on  the 
soundest  morality,  and  which  has  received  the  clearest 
recognition  in  this  court  and  in  others.  Koehler  v.  Black 
Eiver  Falls  Iron  Co.,  2  Black.  715 ;  Drury  v.  Cross,  7  Wall. 
299;  Luxenburg  E.  E.  Co.  v.  Maquay,  25  Beav.  568;  The 
Cumberland  Co.  v.  Sherman,  30  Barb.  553;  16  Md.  456. 
The  general  doctrine,  however,  in  regard  to  contracts  of 
this  class,  is,  not  that  they  are  absolutely  void,  but  that 
they  are  voidable  at  the  election  of  the  party  whose  in- 
terest has  been  so  represented  by  the  party  claiming 
under  it.  We  say,  this  is  the  general  rule :  for  there  may 
be  cases  where  such  contract  should  be  void  ab  initio; 
as  when  an  agent  to  sell  buys  of  himself,  and  by  his  power 
of  attorney  conveys  to  himself  that  which  he  was  author- 
ized to  sell.  But,  even  here,  acts  which  amount  to  a  rati- 
fication by  the  principal  may  validate  the  sale. 


DIRECTORS  1049 

"The  present  case  is  not  one  of  that  class.  While  it 
is  true  that  the  defendant,  as  a  director  of  the  corpora- 
tion, was  bound  by  all  those  rules  of  conscientious  fair- 
ness which  courts  of  equity  have  imposed  as  the  guides 
for  dealing  in  such  cases,  it  cannot  be  maintained  that 
any  rule  forbids  one  director  among  several  from  loan- 
ing money  to  the  corporation  when  the  money  is  needed, 
and  the  transaction  is  open,  and  otherwise  free  from 
blame.  No  adjudged  case  has  gone  so  far  as  this.  Such 
a  doctrine,  while  it  "would  afford  little  protection  to  the 
corporation  against  actual  fraud  or  oppression,  would 
deprive  it  of  the  aid  of  those  most  interested  in  giving 
aid  judiciously,  and  best  qualified  to  judge  of  the  neces- 
sity of  that  aid,  and  of  the  extent  to  which  it  may  safely 
be  given. 

"There  are  in  such  a  transaction  three  distinct  parties 
whose  interest  is  affected  by  it;  namely,  the  lender,  the 
corporation,  and  the  stockholders  of  the  corporation. 

"The  directors  are  the  officers  or  agents  of  the  cor- 
poration, and  represent  the  interests  of  that  abstract  legal 
entity,  and  of  those  who  own  the  shares  of  its  stock.  One 
of  the  objects  of  creating  a  corporation  by  law  is  to  enable 
it  to  make  contracts;  and  these  contracts  may  be  made 
with  its  stockholders  as  well  as  with  others.  In  some 
classes  of  corporations,  as  in  mutual  insurance  compa- 
nies, the  main  object  of  the  act  of  incorporation  is  to 
enable  the  company  to  make  contracts  with  its  stock- 
holders, or  with  persons  who  become  stockholders  by  the 
very  act  of  making  the  contract  of  insurance.  It  is  very 
true,  that  as  a  stockholder,  in  making  a  contract  of  any 
kind  with  the  corporation  of  which  he  is  a  member,  is  in 
some  sense  dealing  with  a  creature  of  which  he  is  a  part, 
and  holds  a  common  interest  with  the  other  stockholders, 
who,  with  him,  constitute  the  whole  of  that  artificial 
entity,  he  is  properly  held  to  a  larger  measure  of  candor 
and  good  faith  than  if  he  were  not  a  stockholder.  So, 
when  the  lendor  is  a  director,  charged,  with  others,  with 
the  control  and  management  of  the  affairs  of  the  corpora- 
tion, representing  in  this  regard  the  aggregated  interest 


1050  CORPORATIONS 

of  all  the  stockholders,  his  obligation,  if  he  becomes  a 
party  to  a  contract  with  the  company,  to  candor  and  fair 
dealing,  is  increased  in  the  precise  degree  that  his  repre- 
sentative character  has  given  him  power  and  control  de- 
rived from  the  confidence  reposed  in  him  by  the  stock- 
holders who  appointed  him  their  agent.  If  he  should  be 
a  sole  director,  or  one  of  a  smaller  number  vested  with 
certain  powers,  this  obligation  would  be  still  stronger, 
and  his  acts  subject  to  more  severe  scrutiny,  and  their 
validity  determined  by  more  rigid  principles  of  morality, 
and  freedom  from  motives  of  selfishness.  All  this  falls 
far  short,  however,  of  holding  that  no  such  contract  can 
be  made  which  will  be  valid ;  and  we  entertain  no  doubt 
that  the  defendant  in  this  case  could  make  a  loan  of  money 
to  the  company;  and  as  we  have  already  said  that  the 
evidence  shows  it  to  have  been  an  honest  transaction  for 
the  benefit  of  the  corporation  and  its  shareholders,  both 
in  the  rate  of  interest  and  in  the  security  taken,  we  think 
it  was  valid  originally,  whether  liable  to  be  avoided  after- 
wards by  the  company  or  not. 

"If  it  be  conceded  that  the  contract  by  which  the  de- 
fendant became  the  creditor  of  the  company  was  valid,  we 
see  no  principle  on  which  the  subsequent  purchase  under 
the  deed  of  trust  is  not  equally  so.  The  defendant  was 
not  here  both  seller  and  buyer.  A  trustee  was  interposed 
who  made  the  sale,  and  who  had  the  usual  powers  neces- 
sary to  see  that  the  sale  was  fairly  conducted,  and  who 
in  this  respect  was  the  trustee  of  the  corporation,  and 
must  be  supposed  to  have  been  selected  by  it  for  the  exer- 
cise of  this  power.  Defendant  was  at  liberty  to  bid,  sub- 
ject to  those  rules  of  fairness  which  we  have  already 
conceded  to  belong  to  his  peculiar  position;  for,  if  ho 
could  not  bid,  he  would  have  been  deprived  of  the  only 
means  which  his  contract  gave  him  of  making  his  debt  out 
of  the  security  on  which  he  had  loaned  his  money.  We 
think  the  sale  was  a  fair  one.  The  company  was  hope- 
lessly involved  beside  the  debt  to  defendant.  The  well 
was  exhausted,  to  all  appearance.  The  machinery  was  of 
little  use  for  any  other  purpose,  and  would  not  pay  trans- 


DIRECTORS  1051 

portation.    Most  of  the  stockholders  who  now  promote 

this  suit  refused  to  pay  assessments  on  their  shares  to 

aid  the  company.    Nothing  was  left  to  the  defendant  but 

to  buy  it  in,  as  no  one  would  bid  the  amount  of  his  debt. 
*     #     # 

"The  doctrine  is  well  settled,  that  the  option  to  avoid 
such  a  sale  must  be  exercised  within  a  reasonable  time. 
This  has  never  been  held  to  be  any  determined  number 
of  days  or  years  as  applied  to  every  case,  like  the  statute 
of  limitations,  but  must  be  decided  in  each  case  upon  all 
the  elements  of  it  which  affect  that  question.  These  are 
generally  the  presence  or  absence  of  the  parties  at  the 
place  of  the  transaction,  their  knowledge  or  ignorance 
of  the  sale  and  of  the  facts  which  render  it  voidable,  the 
permanent  or  fluctuating  character  of  the  subject-mat- 
ter of  the  transaction  as  affecting  its  value,  and  the  actual 
rise  or  fall  of  the  property  in  value  during  the  period 
within  which  this  option  might  have  been  exercised. 

"In  fixing  this  period  in  any  particular  case,  we  are 
but  little  aided  by  the  analogies  of  the  statutes  of  limita- 
tion ;  while,  though  not  falling  exactly  within  the  rule  as 
to  time  for  rescinding,  or  offering  to  rescind,  a  contract 
by  one  of  the  parties  to  it  for  actual  fraud,  the  analogies 
are  so  strong  as  to  give  to  this  latter  great  force  in  the 
consideration  of  the  case.  In  this  class  of  cases  the  party 
is  bound  to  act  with  reasonable  diligence  as  soon  as  the 
fraud  is  discovered,  or  his  right  to  rescind  is  gone.  No 
delay  for  the  purpose  of  enabling  the  defrauded  party  to 
speculate  upon  the  chances  which  the  future  may  give  him 
of  deciding  profitably  to  himself  whether  he  will  abide 
by  his  bargain,  or  rescind  it,  is  allowed  in  a  court  of 
equity. ' ' 

Question  684:  (1.)  In  this  case  was  the  contract  fair  or 
unfair  ? 

(2.)  Does  the  question  whether  it  was  fair  or  unfair  decide 
the  right  of  the  corporation  or  its  stockholders  to  have  it  set 
aside?     (See  Note:) 

(Note:  The  rule  worked  out  by  the  authorities  as  to  con- 
tracts made  between  a  corporation  and  a  director  seems  to  be  this: 


1052  CORPORATIONS 

That  such  a  contract  if  made  by  the  director  through  his  own 
vote  or  other  action  as  the  representative  of  the  corporation,  is 
voidable,  whether  fair  or  not,  at  the  instance  of  any  stockholder 
who  has  not  consented  thereto,  and  who  is  not  guilty  of  laches 
in  prosecuting  his  suit;  that  such  a  contract  if  made  by  the 
director  on  the  vote  of  other  directors  who  compose  the  majority, 
and  who  are  not  "dummies"  is  voidable  if  not  fair,  and  if  not 
made  with  the  fullest  disclosure  of  facts  by  the  contracting  di- 
rector; but  otherwise  it  is  not  voidable,  but  binding.) 

Case  No.  685.  Klem  v.  Independent  Brew.  Ass'n,  231 
111.  594. 

Facts:    The  facts  appear  in  the  opinion. 

Point  Involved:  That  fraudulent  acts  by  directors  are 
not  validated  by  a  ratification  of  stockholders,  who  are 
controlled  by  the  directors. 

Mr.  Justice  Farmer:  "It  is  not  to  be  tolerated  that 
the  directors  of  a  corporation  owning  and  controlling  a 
majority  of  the  stock  shall  be  permitted  to  cause  their  un- 
lawful acts  to  be  ratified  by  calling  a  stockholders '  meet- 
ing which  they  control  as  effectually  as  they  do  the  board 
of  directors  and  causing  a  majority  of  the  stock  to  be 
voted  in  favor  of  the  ratification.  If  the  acts  complained 
of  were  unaffected  by  any  unlawful  and  fraudulent  mo- 
tive and  conduct  and  it  were  a  question  simply  whether 
the  directors  had  exercised  good  judgment  for  the  best 
interests  of  the  corporation,  a  different  rule  would  per- 
haps apply;  for  the  directors  and  a  majority  of  stock- 
holders have  the  right  to  control,  direct  and  manage  the 
corporation.  In  this  case,  however,  the  directors  pur- 
chased from  themselves  property  for  an  amount  much  in 
excess  of  its  value  and  this  was  a  fraud  upon  the  stock- 
holders which  could  not  be  ratified  nor  condoned  by  a 
stockholders '  meeting  at  which  a  majority  of  the  votes 
cast  in  favor  of  the  ratification  were  passed  by  or  under 
the  control  of  the  directors  who  were  guilty  of  the  wrong 
doing.  If  the  reverse  were  true  then  the  minority  stock- 
holders would  be  at  the  mercy  of  the  majority  who  would 
be  able  to  elect  the  directors  and  be  able  to  control  stock- 


DIRECTORS  1053 

holders'  meetings  and  thereby  ratify  the  acts  of  the 
directors  however  wrongful  and  injurious  they  might  be 
to  the  corporation." 

Question  685:  Sfate  the  point  here  involved  and  the  Court's 
decision. 

Case  No.  686.    Hun  v.  Cary,  82  N.  Y.  65. 

Facts:  Suit  brought  by  receiver  of  Central  Savings 
Bank  against  trustees  of  the  bank  to  recover  damages 
caused  by  their  alleged  misconduct.  The  bank  was  or- 
ganized in  1867.  Up  to  January,  1873,  its  deposits  had 
averaged  $70,000  and  its  expenses  exceeded  its  income. 
In  May  of  that  year,  the  trustees  voted  to  purchase  a 
lot  for  $29,250,  paying  $10,000  in  cash,  and  put  up  a 
building  costing  $27,000,  giving  back  a  mortgage  for 
$30,500.  The  object  was  to  increase  the  business  of  the 
bank.  At  the  time  of  the  purchase  the  bank  occupied 
leased  rooms  and  its  liabilities  exceeded  its  assets. 

Point  Involved:  Whether  directors  are  liable  to  the 
corporation  for  improvidence ;  whether  the  acts  in  ques- 
tion were  mere  errors  of  judgment  or  reckless  acts;  the 
duty  of  care  upon  a  director  in  managing  the  corporate 
business. 

Earl,  J.:  "This  action  was  brought  by  the  receiver 
of  the  Central  Savings  Bank  of  the  City  of  New  York, 
against  the  defendants,  who  were  trustees  of  the  bank, 
to  recover  damages  which,  it  is  alleged,  they  caused  the 
bank  by  their  misconduct  as  such  trustees. 

"The  first  question  to  be  considered  is  the  measure  of 
fidelity,  care  and  diligence  which  such  trustees  owe  to 
such  a  bank  and  its  depositors.  The  relation  existing 
between  the  corporation  and  its  trustees  is  mainly  that  of 
principal  and  agent,  and  the  relation  between  the  trus- 
tees and  the  depositors  is  similar  to  that  of  trustee  and 
cestui  que  trust.  The  trustees  are  bound  to  observe  the 
limits  placed  upon  their  powers  in  the  charter,  and  if 
they  transcend  such  limits  and  cause  damage  they  incur 


1054  CORPORATIONS 

liability.  If  they  act  fraudulently  or  do  a  wilful  wrong, 
it  is  not  doubted  that  they  may  be  held  for  all  the  dam- 
age they  cause  to  the  bank  or  its  depositors.  But  if  they 
act  in  good  faith  within  the  limits  of  powers  conferred, 
using  proper  prudence  and  diligence,  they  are  not  respon- 
sible for  mere  mistakes  or  errors  of  judgment.  That 
the  trustees  of  such  corporations  are  bound  to  use  some 
diligence  in  the  discharge  of  their  duties  cannot  be  dis- 
puted. All  the  authorities  hold  so.  What  degree  of 
care  and  diligence  are  they  bound  to  exercise?  Not  the 
highest  degree,  not  such  as  a  very  vigilant  or  extremely 
careful  person  would  exercise.  If  such  were  required, 
it  would  be  difficult  to  find  trustees  who  would  incur  the 
responsibility  of  such  trust  positions.  It  would  not  be 
proper  to  answer  the  question  by  saying  the  lowest 
degree.  Few  persons  would  be  willing  to  deposit  money 
in  savings  banks,  or  to  take  stock  in  corporations,  with 
the  understanding  that  the  trustees  or  directors  were 
bound  only  to  exercise  slight  care,  such  as  inattentive 
persons  would  give  to  their  own  business,  in  the  manage- 
ment of  the  large  and  important  interests  committed  to 
their  hands.  When  one  deposits  money  in  a  savings 
bank,  or  takes  stock  in  a  corporation,  thus  divesting  him- 
self of  the  immediate  control  of  his  property,  he  expects, 
and  has  the  right  to  expect,  that  the  trustees  or  directors, 
who  are  chosen  to  take  his  place  in  the  management  and 
control  of  his  property,  will  exercise  ordinary  care  and 
prudence  in  the  trusts  committed  to  them — the  same  de- 
gree of  care  and  prudence  that  men  prompted  by  self- 
interest  generally  exercise  in  their  own  affairs.  When 
one  voluntarily  takes  the  position  of  trustee  or  director 
of  a  corporation,  good  faith,  exact  justice,  and  public 
policy  unite  in  requiring  of  him  such  a  degree  of  care  and 
prudence,  and  it  is  a  gross  breach  of  duty — crassa  neg- 
ligentia — not  to  bestow  them. 

"It  is  impossible  to  give  the  measure  of  culpable  negli- 
gence for  all  cases,  as  the  degree  of  care  required  depends 
upon  the  subjects  to  which  it  is  to  be  applied.  (First 
Nat.  Bank  v.  Ocean  Nat.  Bank,  60  N.  Y.  278.)     What 


DIRECTORS  1055 

would  be  slight  neglect  in  the  care  of  a  quantity  of  iron 
might  be  gross  neglect  in  the  care  of  a  jewel.  What 
would  be  slight  neglect  in  the  care  exercised  in  the  affairs 
of  a  turnpike  corporation  or  even  of  a  manufacturing 
corporation,  might  be  gross  neglect  in  the  care  exercised 
in  the  management  of  a  savings  bank  intrusted  with  the 
savings  of  a  multitude  of  poor  people,  depending  for  its 
life  upon  credit  and  liable  to  be  wrecked  by  the  breath  of 
suspicion.  There  is  a  classification  of  negligence  to  be 
found  in  the  books,  not  always  of  practical  value  and  yet 
sometimes  serviceable,  into  slight  negligence,  gross  negli- 
gence, and  that  degree  of  negligence  intermediate  the 
two,  attributed  to  the  absence  of  ordinary  care ;  and  the 
claim  on  behalf  of  these  trustees  is  that  they  can  only  be 
held  responsible  in  this  action  in  consequence  of  gross 
negligence,  according  to  this  classification.  If  gross  neg- 
ligence be  taken  according  to  its  ordinary  meaning — as 
something  nearly  approaching  fraud  or  bad  faith — I  can- 
not yield  to  this  claim;  and  if  there  are  any  authorities 
upholding  the  claim,  I  emphatically  dissent  from  them. 

"It  seems  to  me  that  it  would  be  a  monstrous  proposi- 
tion to  hold  that  trustees,  intrusted  with  the  management 
of  the  property,  interests  and  business  of  other  people 
who  divest  themselves  of  the  management  and  confide  in 
them,  are  bound  to  give  only  slight  care  to  the  duties  of 
their  trust,  and  are  liable  only  in  case  of  gross  inatten- 
tion and  negligence ;  and  I  have  found  no  authority  fully 
upholding  such  a  proposition."  [Held  that  the  trustees 
were  not  guilty  of  a  mere  error  of  judgment,  but  improvi- 
dence, and  reckless  extravagance  and  therefore  liable  to 
the  receiver.] 

Question  686:  What  degree  of  care  must  a  director  show? 
Does  the  nature  of  the  business  help  to  determine  ?  Suppose  the 
director  does  not  act  in  bad  faith,  is  that  alone  enough  to  save 
him  ?    Is  a  director  always  liable  for  errors  of  judgment  ? 

Sec.  509?    Liability  of  Director  to  Third  Persons. 

Case  No.  687.    Morgan  v.  Skiddy  et  al.,  62  N.  Y.  319. 

Facts:    Certain  directors  sanctioned  the  circulation  of 

a  prospectus  known  to  contain  false  statements  of  ma- 


1056  CORPORATIONS 

terial  facts  in  respect  to  the  assets  and  condition  of  the 
corporation,  the  natural  tendency  of  which  was  to  induce 
subscriptions.  Plaintiff  relying  thereon  bought  stock. 
He  sues  the  directors  for  fraud. 

Point  Involved:  Whether  a  director  is  personally 
liable  who  sanctions  false  statements  to  induce  subscrip- 
tions. 

Andrews,  J.:    "*     *     * 

' '  The  representations  made  in  the  prospectus  as  to  the 
exploration  made  on  the  land  of  the  company  were  false. 
But  two  or  three  shafts  had  been  sunk  upon  this  property. 
Very  little  work  had  been  done  upon  it,  and  the  presence 
of  valuable  ores  in  any  considerable  quantities  had  not 
been  discovered.  *  *  *  The  false  statement  in  the 
prospectus  related  to  an  existing  fact  which  ma- 
terially affected  the  value  of  the  shares ;  it  was  prepared 
for  the  purpose  of  circulation  and  to  induce  investments 
in  the  stock  of  the  company.  If  the  plaintiff  purchased 
his  stock  relying  upon  the  truth  of  the  prospectus,  he  has 
a  right  of  action  for  deceit  against  the  persons  who,  with 
knowledge  of  the  fraud  and  with  intent  to  deceive,  put 
it  in  circulation.  The  representation  was  made  to  each 
person  comprehended  within  the  class  of  persons  who 
were  designed  to  be  influenced  by  the  prospectus;  and 
when  a  prospectus  of  this  character  has  been  issued  no 
other  relation  or  privity  between  the  parties  need  be 
shown,  except  that  created  by  the  wrongful  and  fraud- 
ulent act  of  the  defendants  in  issuing  or  circulating  the 
prospectus,  and  the  resulting  injury  to  the  plaintiff. 
(Clark  v.  Dixon,  6  C.  B.  [N.  S.],  453;  Central  Eailroad 
Co.  v.  Kish,  Law  Eep.  [2  Eng.  and  Irish  App.],  100.)' ' 

Question  687:  In  what  way  were  the  false  statements  made 
in  this  case  ?  Did  the  directors  know  the  statements  were  false  ? 
Were  they  held  liable? 

(Note:  Statutes  extend  or  declare  the  liability  of  a  director. 
Thus  a  director  may  be  made  liable  for  knowingiy  making  false 
financial  statements,  allowing  the  debts  to  exceed  the  capital 
stock,  etc.,  allowing  the  corporation  to  proceed  to  business  without 
having  complied  with  certain  statutes,  etc.) 


CHAPTER    NINETY-NINE 
ADMINISTRATIVE  OFFICERS 

§  510.  In  general.  §  511.  The  various  officers. 

Sec.  510.   In  General. 

(Note :  The  usual  administrative  officers  of  a  corporation  are 
the  President,  Secretary  and  Treasurer.  They  are  elected  by  the 
directors.  In  addition  a  corporation  may  have  other  officers,  as 
vice  presidents,  chairman  of  board,  cashier,  etc.  The  powers  of 
these  officers  differ  widely  in  different  corporations,  according 
to  the  actual  or  apparent  power  given  in  each  case.) 

Sec.  511.    The  Various  Officers. 

(Note:  The  President — The  president  of  a  corporation  has 
the  duty  of  presiding  at  directors'  meetings  and  in  some  states, 
but  not  in  others,  he  is  presumed  to  be,  in  the  absence  of  evidence 
to  the  contrary,  a  general  manager. 

The  Vice-President — The  vice-president  is  an  officer  whose 
powers  as  such  are  very  ill  defined  and  usually  reference  must  be 
made  to  the  particular  facts  in  the  case.  He  may  as  a  matter  of 
fact,  have  very  extensive  powers,  or  his  office  may  be  purely 
honorary. 

The  Treasurer — The  treasurer  has  the  charge  of  the  books 
relating  to  his  office,  and  the  funds  of  the  corporation.  His  duty 
is  to  receive  the  funds  and  pay  them  out  upon  proper  vouchers 
or  directions.  He  has  very  little  implied  power  to  bind  the 
corporation. 

The  Secretary — The  secretary  of  the  corporation  has  charge  of 
its  books  and  its  seal,  and  his  duty  is  to  keep  the  usual  secretarial 
books,  attend  to  the  ordinary  details  of  management,  send  out 

1057 


1058  I  CORPORATIONS 

notices  of  meetings,  attend  stockholders'  and  directors'  meetings, 
and  act  as  secretary  of  those  meetings. 

Other  Administrative  Officers — Besides  the  officers  named,  any 
corporation  may  have  certain  other  administrative  officers  whose 
powers  and  duties  depend  in  each  case  upon  the  particular  facts 
involved.) 


PART    XXIX 
FOREIGN  CORPORATIONS 

Chapter  One  Hundred.  Foreign  Corporation 

Defined ;  Its  Gen- 
eral Status. 

Chapter  One  Hundred  and  One.  Same  Subject  Con- 
tinued. 


CHAPTER    ONE    HUNDRED 

FOREIGN  CORPORATION  DEFINED;  ITS 
GENERAL  STATUS 

§  512.  Foreign  corporation  denned.  §  514.  Rights     under    the     Federal 

§  513.  Right  of  corporation  in  other  Constitution, 

than  the  home  state. 

Sec.  512.    Foreign  Corporations  Defined. 

(Note:  A  foreign  corporation  is  a  corporation  created  by 
another  legislative  jurisdiction  than  the  one  in  which  its  right 
to  come  to  do  corporate  acts,  to  carry  on  business,  to  own  prop- 
erty, is  being  considered.  Thus  an  Illinois  corporation  is  a  for- 
eign corporation  in  Indiana.) 

Sec.  513.    Right  of  Corporation  in  Other  Than  the 
Home  State. 

Case  No.  688.  Empire  Mills  v.  Alston  Groc.  Co.,  —  Tex. 
Ap.  — ,  12  L.  R.  A.  366. 

1059 


1060  CORPORATIONS 

Davidson,  J.:  "Again,  it  may  be  said  in  this  connec- 
tion that '  it  is  a  fundamental  principle  that  the  laws  of  a 
state  can  have  no  binding  force,  proprio  vigore,  outside 
of  the  territorial  limits  and  jurisdiction  of  the  state  enact- 
ing them. '  *  *  *  *  Hence  it  follows  that  a  state  can- 
not grant  to  any  person  the  right  to  exercise  a  franchise 
in  a  foreign  state  or  country;  for  a  franchise  is  the 
result  of  a  law  authorizing  particular  individuals  to  do 
acts  or  enjoy  immunities  which  are  not  allowed  to  the 
community  at  large. '  Morawetz,  Priv.  Corp.  1st  ed.  500, 
535. 

"A  grant  of  corporate  existence  is  a  grant  of  special 
privileges  to  the  corporators,  enabling  them  to  act  for 
certain  designated  purposes  as  a  single  individual,  and 
exempting  them  (unless  otherwise  provided)  from  in- 
dividual liability.  The  corporation,  being  the  mere  crea- 
tion of  local  law,  can  have  no  legal  existence  beyond  the 
limits  of  the  sovereignty  where  created.  It  must  dwell 
in  the  place  of  its  creation,  and  cannot  migrate  to  another 
sovereignty.  The  recognition  of  its  existence  even  by 
other  states  and  the  enforcement  of  its  contracts  made 
therein  depend  purely  upon  the  comity  of  those  states.' 
Morawetz  Priv.  Corp.  1st  ed.  Sec.  500.     *     *     * 

"The  rule  of  comity  is  entirely  in  subjection  to  the 
sovereign  will  of  the  state,  and  can  only  exist  by  per- 
mission of  the  state  in  which  it  is  sought  to  employ  it. 
#     *     *  tt 

Question  688:  Has  a  corporation  a  right  to  enter  other  states  ? 
By  virtue  of  what  does  it  enter  ? 

Case  No.  689.    Paul  v.  Virginia,  8  Wall.  168. 

Mr.  Justice  Field  :    "*     *     * 

"Now  a  grant  of  corporate  existence  is  a  grant  of  spe- 
cial privileges  to  the  corporators,  enabling  them  to  act 
for  certain  designated  purposes  as  a  single  individual, 
and  exempting  them  (unless  otherwise  specially  pro- 
vided) from  individual  liability.    The  corporation,  being 


FOREIGN  CORPORATIONS  1061 

the  mere  creation  of  local  law,  can  have  no  legal  existence 
beyond  the  limits  of  the  sovereignty  where  created.  As 
said  by  this  Court  in  Bank  of  Augusta  v.  Earle,  13  Pet. 
519,  10  L.  Ed.  274:  'It  must  dwell  in  the  place  of  its 
creation,  and  cannot  migrate  to  another  sovereignty.' 
The  recognition  of  its  existence  even  by  other  states,  and 
the  enforcement  of  its  contracts  made  therein,  depend 
purely  upon  the  comity  of  those  states — a  comity  which  is 
never  extended  where  the  existence  of  the  corporation 
or  the  exercise  of  its  powers  is  prejudicial  to  their  inter- 
ests or  repugnant  to  their  policy.  Having  no  absolute 
right  of  recognition  in  other  states,  but  depending  for 
such  recognition  and  the  enforcement  of  its  contracts 
upon  their  assent,  it  follows,  as  a  matter  of  course,  that 
such  assent  may  be  granted  upon  such  terms  and  condi- 
tions as  those  states  may  think  proper  to  impose.  They 
may  exclude  the  foreign  corporation  entirely,  they  may 
restrict  its  business  to  particular  localities,  or  they  may 
exact  such  security  for  the  performance  of  its  contracts 
with  their  citizens  as  in  their  judgment  will  best  promote 
the  public  interest.  The  whole  matter  rests  in  their  dis- 
cretion. ' ' 

Question  689:    What  does  this  case  hold? 

(Note :  This  case  also  held  that  the  issuance  of  an  insurance 
policy  by  a  citizen  of  one  state  to  a  citizen  of  another,  is  not 
interstate  commerce.) 

Sec.  514.    Rights  Under  the  Federal  Constitution. 

Case  No.  690.  Butler  Bros.  Shoe  Co.  v.  U.  S.  Rubber 
Co.,  156  Fed.  1. 

Sanborn,  J.:    "*     *     * 

''The  review  of  the  decisions  of  the  Supreme  Court  re- 
lating to  the  power  of  a  state  to  trammel  or  destroy  the 
right  of  a  corporation  of  another  state  to  do  business 
within  its  borders  in  which  we  have  indulged  may  have 


1062  CORPORATIONS 

been  tedious ;  but  it  may  be  profitable,  if  it  serve  to  cor- 
rect the  erroneous  view  that  such  a  corporation  has  no 
such  right,  and  that  all  its  powers  and  privileges  without 
the  limits  of  the  state  of  its  creation  are  at  the  mercy  of 
any  state  in  which  it  attempts  to  do  business.  It  is  not 
now,  and  it  never  has  been,  the  law  that  no  corporation  of 
one  state  has  any  absolute  right  of  recognition  in  other 
states,  or  that  other  states  may  exclude  all  the  corpora- 
tions of  any  state  from  doing  any  business  within  them, 
or  that  they  may  condition  their  transaction  of  such  busi- 
ness by  such  terms  as  they  may  think  proper  to  impose. 

"The  Constitution  of  the  United  States  and  the  acts 
of  Congress  in  pursuance  thereof  are  the  supreme  law 
of  the  land.  Under  that  Constitution  and  those  laws  a 
corporation  of  one  state  has  at  least  three  absolute  rights 
which  it  may  freely  exercise  in  every  other  state  in  the 
Union,  without  let  or  hindrance  from  its  legislation,  or 
action : 

"(1)  Every  corporation  empowered  to  engage  in  in- 
terstate commerce  by  the  state  in  which  it  is  created,  may 
carry  on  interstate  commerce  in  every  state  in  the  Union, 
free  of  every  prohibition  and  condition  imposed  by  the 
latter.     *     *     * 

"Every  corporation  of  any  state  in  the  employ  of  the 
United  States  has  the  right  to  exercise  the  necessary 
corporate  powers  and  to  transact  the  business  requisite 
to  discharge  the  duties  of  that  employment  in  every  other 
state  in  the  Union  without  permission  granted,  or  condi- 
tions imposed  by  the  latter.     *     *     * 

1 '  Every  corporation  of  each  state  has  the  absolute  right 
to  institute  and  maintain  in  the  federal  courts,  and  to 
remove  to  those  courts  for  trial  and  decision,  its  suits 
in  every  other  state,  in  the  cases  and  on  the  terms  pre- 
scribed by  the  acts  of  Congress.     *     *     * 

1 '  Every  law  of  a  state  which  attempts  to  destroy  these 
rights  or  to  burden  their  exercise  is  violative  of  the 
Constitution  of  the  United  States  and  void." 

Question  690:  To  what  extent  is  the  power  of  a  state  over 
foreign  corporations  limited  by  the  United  States  Constitution? 


CHAPTER    ONE    HUNDRED    AND    ONE 
SAME  SUBJECT:   Continued 

§  515.  Usual  provisions  in  the  law  §  518.  Penalty    for    non-compliance 

affecting    foreign    corpora-  with     foreign     corporation 

tions.  law. 

§  516.  How  corporations  may  enter  §  519.  Jurisdiction  of  court  over  in- 

a  foreign   state.  ternal    affairs    of    foreign 

§  517.  What  amounts  to  transacting  corporation. 

business  within  meaning  of 

foreign  corporation  laws. 

Sec.  515.    Usual  Provisions  in  the  Law  Affecting  Foreign 

Corporation. 

(Note :  Of  course  the  laws  of  the  different  states  vary  in  their 
regulation  of  foreign  corporations.  The  more  common  provisions 
are :  that  in  order  to  qualify  to  do  business,  a  foreign  corporation 
must  file  a  copy  of  its  charter,  state  the  names  and  addresses  of 
its  stockholders,  directors  and  officers,  state  how  much  of  its  capi- 
tal is  to  be  represented  in  the  state,  pay  certain  fees,  name  an 
agent  upon  whom  service  of  process  may  be  made,  etc.,  under 
penalty  for  non-compliance  of  a  fine  and  inability  to  enforce  con- 
tractual obligations.) 

Sec.  516.    How  Corporation  May  Enter  Another  State. 

(Note:  A  corporation  may  enter  another  state,  and  become 
there  constructively  present,  as  follows : 

(1.)     By  transacting  business  in  another  state. 

(2.)  By  performing  isolated  transactions,  as  bringing  suit, 
making  loans,  holding  meetings,  and  the  like. 

(3.)     By  having  property  there. 

(Edwards  v.  Schillinger,  245  111.  231.  "It  is  the  just  and 
reasonable  theory  that  a  business  corporation  is  constructively 

1063 


1064  CORPORATIONS 

present  outside  of  the  place  of  its  origin  whenever  it  has  property 
and  carries  on  its  operations  by  means  of  its  agents.") 

Sec.  517.   What  Amounts  to  Transacting"  Business  Within 
Meaning  of  Foreign  Corporation  Laws. 

(Note :  When  a  corporation  is  in  another  state,  the  question 
whether  it  is  "transacting  business"  there,  within  the  meaning 
of  the  foreign  corporation  laws  of  that  state  is  very  important. 
If  it  is  not  transacting  business  there  it  need  not  comply  with 
the  foreign  corporation  laws,  and  it  is  not  subject  to  the  pen- 
alties fixed  for  non-compliance.) 

Case  No.  691.    Kirven  v.  Virginia,  Etc.,  Co.,  145  Fed. 

288. 

Dayton,  D.  J.:    "•     *     * 

"It  has  further  been  held  that  sales  of  goods  by  a 
foreign  corporation  to  a  resident  of  a  state,  although 
made  by  a  salesman  or  agent  sent  into  the  state,  to  be 
shipped  to  him  in  the  state  from  another  state,  belong  to 
the  operations  of  the  interstate  commerce  and  are  not 
subject  to  these  restrictive  laws  of  the  states.  Also  even 
though  the  business  is  done  by  the  foreign  corporation 
through  an  agent  or  firm  resident  in  the  state,  and  notes 
are  given  in  settlement  in  the  state  payable  in  the  state. 
It  has,  however,  been  held  that  this  interstate  commerce 
clause  does  not  apply  to  foreign  corporations  maintain- 
ing continuously  an  agency  in  a  state  from  which  orders 
are  solicited  and  the  goods  are  delivered  to  purchasers. 

"In  construing  the  effect  of  these  statutes  in  given 
cases,  it  has  become  frequently  necessary  for  the  courts 
to  define  what  constitutes  a  *  doing,  transacting  or  carry- 
ing on  a  business,'  and,  while  there  is  some  conflict,  the 
greater  weight  of  authority  is  to  the  effect  that  isolated 
transactions,  especially  commercial,  between  foreign  cor- 
porations and  a  citizen  of  the  state,  do  not  constitute  a 
'doing,  transacting  or  carrying  on  a  business,'  within 
the  meaning  of  such  statutes  using  these  terms.  It  has 
so  been  held  by  the  courts  of  Alabama,  Arkansas,  Colo- 


FOREIGN  CORPORATIONS  1065 

rado,  Illinois,  Iowa,  Kansas,  Missouri,  New  Jersey,  New 
York,  Oregon,  Pennsylvania,  Tennessee,  Texas,  Washing- 
ton, Wisconsin,  and  by  the  federal  courts  in  such  cases  as 
Cooper  Mfg.  Co.  v.  Ferguson,  113  U.  S.  727 ;  Frawley  v. 
Penna  Casualty  Co.,  124  Fed.  259 ;  Oakland  Sugar  Co.  v. 
Wolf,  118  Fed.  239.  Among  such  instances  of  single 
transactions  not  constituting  a  'doing  of  business  within 
the  meaning  of  the  statutes'  are  the  making  of  a  single 
sale  or  contract  of  goods  to  a  citizen  and  the  taking  of  a 
mortgage  in  the  state  to  secure  payment  therefor.  *  *  * 
And  the  taking  of  notes  in  the  state  for  goods  sold  or  a 
debt  contracted  in  another  state,  and  the  suing  thereon 
in  the  state,  does  not  constitute  such  '  doing  of  business. ' 
*  *  *  And  these  statutes  cannot  affect  contracts  made 
by  a  citizen  outside  of  his  state  with  a  foreign  corpora- 
tion, as  for  instance,  where  an  order  is  sent  by  the  citizen 
for  goods  to  the  foreign  corporation,  or  where  such  or- 
der is  taken  by  a  local  agent,  subject  to  the  approval 
of  the  corporation,  and  is  approved  by  the  corporation 
outside  the  state,  and  the  goods  are  shipped  from  outside 
the  state  by  it  to  the  purchaser  in  the  state.     *     *     *  " 

Question  691:  The  A  corporation  organized  under  the  laws 
of  New  Jersey,  has  its  general  office  and  factory  in  New  York  and 
opens  up  a  branch  office  in  Illinois,  from  which  contracts  are 
closed  and  goods  are  delivered  to  purchasers.  It  also  has  a  trav- 
eling salesman  in  Massachusetts  who  solicits  orders  and  sends 
them  in  to  be  approved  and  filled.  It  also  purchases  land  in 
Ohio,  and  then,  deciding  not  to  open  an  office  there,  resells  the 
same  and  takes  back  a  mortgage.  In  which  of  these  states  must 
it  comply  with  the  foreign  corporation  law? 

Case  No.  692.  International  Text  Book  Co.  v.  Pigg, 
217  U.  S.  91. 

Facts:  Suit  brought  by  International  Text  Book  Co. 
to  recover  of  Pigg  a  sum  of  money  due  for  instruction  in 
commercial  law.  Defense,  that  the  plaintiff  had  not  com- 
plied with  the  Kansas  Foreign  Corporation  Law,  and 
therefore  in  accordance  with  that  law  could  not  sue  in 
the  Kansas  courts. 


1066  CORPORATIONS 

Point  Involved:  Whether  the  contract  sued  on  in- 
volved interstate  commerce,  which  the  Kansas  statute 
could  not  burden.  What  in  general  constitutes  interstate 
commerce? 

Mr.  Justice  Harlan:    "*     *     * 

"It  is  true  that  the  business  in  which  the  International 
Text-book  Company  is  engaged  is  of  a  somewhat  excep- 
tional character,  but,  in  our  judgment,  it  was,  in  its  essen- 
tial characteristics,  commerce  among  the  states  within 
the  meaning  of  the  Constitution  of  the  United  States.  It 
involved,  as  already  suggested,  regular  and,  practically, 
continuous  intercourse  between  the  Text-book  Company, 
located  in  Pennsylvania,  and  its  scholars  and  agents  in 
Kansas  and  other  states.  That  intercourse  was  conducted 
by  means  of  correspondence  through  the  mails  with 
such  agents  and  scholars.  While  this  mode  of  imparting 
and  acquiring  an  education  may  not  be  such  as  is  com- 
monly adopted  in  this  country,  it  is  a  lawful  mode  to  ac- 
complish the  valuable  purpose  the  parties  have  in  view. 
More  than  that;  this  mode — looking  at  the  contracts  be- 
tween the  Text-book  Company  and  its  scholars — involved 
the  transportation  from  the  state  where  the  school  is  lo- 
cated to  the  state  in  which  the  scholar  resides,  of  books, 
apparatus  and  papers,  useful  or  necessary  in  the  particu- 
lar course  of  study  the  scholar  is  pursuing  and  in  respect 
of  which  he  is  entitled,  from  time  to  time,  by  virtue  of  his 
contract,  to  information  and  direction.  Intercourse  of 
that  kind,  between  parties  in  different  states — particu- 
larly when  it  is  in  execution  of  a  valid  contract  between 
them — is  as  much  intercourse,  in  the  constitutional  sense, 
as  intercourse  by  means  of  the  telegraph — '  a  new  species 
of  commerce, '  to  use  the  words  of  this  Court  in  Pensa- 
cola  Telegraph  Co.  v.  Western  Union  Telegraph  Co.,  96 
U.  S.  1,  9.  In  the  great  case  of  Gibbons  v.  Ogden,  9 
Wheat.  1, 189,  this  Court,  speaking  by  Chief  Justice  Mar- 
shall, said,  l  Commerce,  undoubtedly,  is  traffic,  but  it  is 
something  more ;  it  is  intercourse. '  Referring  to  the  con- 
stitutional power  of   Congress  to   regulate   commerce 


J 
FOREIGN  CORPORATIONS  1067 

among  the  states  and  with  foreign  countries,  this  Court 
said  in  the  Pensacola  case,  just  cited,  that  'it  is  not  only 
the  right  but  the  duty  of  Congress  to  see  to  it  that  inter- 
course among  the  states  and  the  transmission  of  intelli- 
gence are  not  obstructed  or  unnecessarily  encumbered  by 
state  legislation. '  This  principle  has  never  been  modified 
by  any  subsequent  decision  of  this  Court. 

"The  same  thought  was  expressed  in  Western  Union 
Tel.  Co.  v.  Pendleton,  122  U.  S.  347,  356,  where  the  Court 
said:  *  Other  commerce  deals  only  with  persons,  or  with 
visible  and  tangible  things.  But  the  telegraph  transports 
nothing  visible  and  tangible ;  it  carries  only  ideas,  wishes, 
orders  and  intelligence. '  It  was  said  in  the  Circuit  Court 
of  Appeals  for  the  Eighth  Circuit,  speaking  by  Judge 
Sanborn,  in  Butler  Bros.  Shoe  Co.  v.  United  States  Rub- 
ber Co.,  156  Fed.  Rep.  1, 17,  that  'all  interstate  commerce 
is  not  sales  of  goods.  Importation  into  one  state  from 
another  is  the  indispensable  element,  the  test,  of  inter- 
state commerce;  and  every  negotiation,  contract,  trade, 
and  dealing  between  citizens  of  different  states,  which 
contemplates  and  causes  such  importation,  whether  it  be 
of  goods,  persons,  or  information,  is  a  transaction  of 
interstate  commerce. '  If  intercourse  between  persons  in 
different  states  by  means  of  telegraphic  messages  con- 
veying intelligence  or  information  is  commerce  among 
the  states,  which  no  state  may  directly  burden  or  unneces- 
sarily encumber,  we  cannot  doubt  that  intercourse  or 
communication  between  persons  in  different  states,  by 
means  of  correspondence  through  the  mails,  is  commerce 
among  the  states  within  the  meaning  of  the  Constitution, 
especially  where,  as  here,  such  intercourse  and  commu- 
nication really  relates  to  matters  of  regular,  continuous 
business  and  to  the  making  of  contracts  and  the  trans- 
portation of  books,  papers,  etc.,  appertaining  to  such 
business.  In  our  further  consideration  of  this  case  we 
shall  therefore  assume  that  the  business  of  the  Text- 
book Company,  by  means  of  correspondence  through  the 
mails  and  otherwise  between  Kansas  and  Pennsylvania, 
was  interstate  in  its  nature," 


1068  CORPORATIONS 

Question  692:  (1.)  Define  interstate  commerce;  what  does 
it  include? 

(2.)     Can  a  state  restrict  interstate  commerce?    Why? 

Sec.  518.   Penalty  for  Non-compliance  With  Foreign 
Corporation  Law. 

Case  No.  693.  Fruin-Colnon  Contracting  Co.  v.  Chat- 
terson,  146  Ky.  540. 

Carroll,  J. :  "  She  set  up  that  the  appellant  had  failed 
to  comply  with  this  statute  and  hence  could  not  recover 
against  her  on  the  contract  made  with  the  board  of  public 
works  for  the  street  improvement.  In  a  reply,  appellant 
admitted  that  when  the  contract  was  awarded  and  the 
work  completed  it  had  not  complied  with  the  statute,  but 
averred  that  it  did  so  afterwards,  and  in  November,  1909. 
Chancellor  Miller,  now  a  judge  of  this  court,  ruled  that, 
under  the  facts  admitted  in  the  pleadings,  the  plaintiff 
could  not  recover  and  entered  a  judgment  dismissing  the 
petition.  On  this  appeal,  the  only  question  presented  is, 
Did  the  failure  of  the  appellant  to  comply  with  the  stat- 
ute before  making  the  contract  and  completing  the  work 
under  it  deny  it  the  right  to  recover  the  cost  of  the  im- 
provement?    *     *     * 

"With  the  question  of  estoppel  out  of  the  way,  the 
exact  matter  for  decision  is,  Will  a  foreign  corporation 
be  assisted  by  the  courts  of  this  state  to  enforce  a  con- 
tract that  was  entered  into  and  completed  at  a  time  when 
it  was  unlawful  for  the  corporation  to  carry  on  in  this 
state  the  business  it  was  engaged  in,  and  out  of  which 
the  contract  arose?  The  statute  does  not  provide  that 
contracts  entered  into  before  it  has  been  complied  with 
shall  be  void  or  nonenforceable,  nor  does  it  use  any  lan- 
guage in  reference  to  the  contract;  but,  when  a  statute 
makes  it  unlawful  to  do  business  under  certain  condi- 
tions, it  seems  to  necessarily  and  logically  follow  that  the 
doing  of  the  business  under  the  prohibited  conditions  is 
in  itself  unlawful.    When  the  doing  of  the  act  is  made  un- 


FOREIGN  CORPORATIONS  1069 

lawful,  there  is  no  reason  why  the  statute  should  also 
declare  that  contracts  made  in  violation  of  it  should  also 
be  unlawful.  "When  the  law  prohibits  a  thing,  it  is  un- 
lawful to  do  it,  and  the  courts  should  not  lend  their  aid 
to  the  enforcement  of  prohibited  contracts.  Courts  are 
established  to  afford  remedies  to  litigants  who  seek  relief 
growing  out  of  lawful  transactions,  and  not  to  aid  those 
who  would  invoke  their  assistance  to  enforce  contracts 
made  in  violation  of  law.  Their  chief  purpose  is  to  se- 
cure the  observation  of  laws  enacted  for  the  safety  and 
protection  of  life  and  property  and  the  general  well-being 
of  the  people,  and  it  would  be  a  startling  departure  from 
this  purpose  if  they  should  also  give  relief  to  parties 
who  are  seeking  to  enforce  contracts  made  in  violation  of 
law.  Such  a  course  of  procedure  would  be  a  perversion 
of  justice,  and  convert  the  courts  into  instruments  to  aid 
lawbreakers,  in  place  of  punishing  them.  It  is  also 
argued  that  it  would  be  a  hardship  on  this  corporation 
to  lose  the  value  of  its  work,  but  this  furnishes  no  ex- 
cuse why  it  should  obtain  relief,  as  there  is  scarcely  a 
penal  statute  the  enforcement  of  which  does  not  impose 
severe  burdens;  and  if  the  severity  of  the  punishment 
should  be  treated  as  a  reason  for  disregarding  the  stat- 
ute, many  beneficial  laws  would  be  unenforced. 

"Our  attention  has  been  called  by  counsel  for  appellant 
to  authorities  from  other  -states,  holding  that  the  courts 
will  not  deny  relief  in  cases  of  this  character,  but  will 
leave  the  offending  corporations  to  be  punished  under 
that  penalty  feature  of  the  statute.  That  there  is  much 
diversity  of  opinion  on  the  subject  under  consideration  to 
be  found  in  the  decisions  of  the  courts  of  other  states  can- 
not be  doubted  by  any  person  who  has  examined  the 
cases,  but  we  think  the  weight  of  authority  supports  the 
principle  that  when  a  statute  expressly  declares  that  it 
shall  be  unlawful  to  do  business  until  its  requirements 
shall  have  been  complied  with,  a  contract  made  in  con- 
travention of  the  statute  will  not  be  enforced  by  the 
courts.     *     *     *" 


1070  CORPORATIONS 

Question  693:  What  was  the  defense  made  in  this  case  ?  How 
was  this  defense  met?  Did  the  defense  prevail?  Are  all  the 
states  in  accord  on  this  question  ? 

Sec.  519.    Jurisdiction  of  Court  Over  Internal  Affairs  of 
Foreign  Corporation. 

Case  No.  694.    Babcock  v.  Farwell,  245  111.  14. 

Facts:  Suit  in  the  Illinois  courts,  by  a  stockholder  of 
a  corporation  organized  under  laws  of  Great  Britain  to 
set  aside  certain  contracts  made  between  the  corporation 
and  Farwell  declared  void  and  to  compel  an  accounting. 
Defense,  that  the  Illinois  Court  has  no  jurisdiction  over 
internal  controversies  in  the  corporation. 

Mr.  Justice  Dunn:  "The  general  rule  has  been  de- 
clared by  the  decisions  of  many  courts  and  has  been 
stated  by  text  writers  to  be,  that  the  courts  of  one  state 
will  not  exercise  the  power  of  deciding  controversies  re- 
lating merely  to  the  internal  management  of  the  affairs 
of  a  corporation  organized  under  the  laws  of  another 
state  or  of  determining  rights  dependent  upon  such  man- 
agement.    *     *     * 

"As  stated  in  Thompson  on  Corporations,  supra,  this 
doctrine  obviously  has  its  limitations.  Except  in  cases 
involving  the  exercise  of  visitorial  powers,  the  question 
is  not  strictly  one  of  jurisdiction  but  rather  of  discretion 
in  the  exercise  of  jurisdiction.  The  reasons  which  in- 
fluence courts  of  chancery  to  refuse  to  interfere  in  the 
management  of  the  internal  affairs  of  a  foreign  corpora- 
tion are,  that  the  rights  arising  between  a  corporation 
and  its  members  out  of  such  management  depend  upon 
the  laws  under  which  the  corporation  is  organized;  that 
the  courts  of  that  state  afford  the  most  appropriate 
forum  for  adjudication  upon  the  relation  between  the 
stockholders  and  the  corporation,  and  that  frequently 
such  courts  alone  possess  power  adequate  to  the  enforce- 
ment of  all  decrees  that  justice  may  require.    It  is  the 


FOREIGN  CORPORATIONS  1071 

inability  of  the  Court  to  do  complete  justice  by  its  decree, 
and  not  its  incompetency  to  decide  the  question  involved, 
that  determines  the  exercise  of  its  power.  The  general 
statement  that  courts  will  not  interfere  with  the  manage- 
ment of  the  internal  affairs  of  foreign  corporations  must 
be  construed  in  connection  with  the  particular  facts.  The 
rule  rests  more  on  grounds  of  policy  and  expediency  than 
on  jurisdictional  grounds;  more  on  want  of  power  to 
enforce  a  decree  than  on  jurisdiction  to  make  it.  Where 
the  wrongs  complained  of  are  merely  against  the  sover- 
eignty by  which  the  corporation  was  created  or  the  law 
of  its  existence,  or  are  such  as  require  for  their  redress 
the  exercise  of  the  visitorial  powers  of  the  sovereign,  or 
where  full  jurisdiction  of  the  corporation  and  of  its 
stockholders  is  necessary  to  such  redress,  the  courts  will 
decline  jurisdiction.  Examples  of  such  cases  are  suits  to 
dissolve  a  corporation;  to  appoint  a  receiver;  to  deter- 
mine the  validity  »of  its  organization  or  which  of  two 
rival  organizations  is  legal ;  to  restrain  it  from  declaring 
a  dividend  or  compel  it  to  make  one ;  to  restrain  an  issue 
of  stock  or  of  bonds ;  to  compel  a  division  of  its  assets ; 
to  restore  a  stockholder  to  his  right  to  vote  at  stockhold- 
ers '  meetings  from  which  he  has  been  excluded,  or  to  com- 
pel the  recognition  of  one  claiming  to  have  been  elected 
a  director.     *     *     * 

"Where,  however,  the  relief  sought  is  within  the  gen- 
eral jurisdiction  of  a  court  of  chancery,  where  all  the 
parties  necessary  to  the  full  and  proper  adjustment  of  the 
rights  involved  are  before  the  Court  and  where  the  relief 
sought  does  not  require  the  exercise  of  the  visitorial 
power  of  the  government,  we  think  the  Court  should 
exercise  the  power  of  determining  controversies  brought 
before  it  instead  of  remitting  suitors  to  a  foreign  juris- 
diction. ' ' 

Question  694:  Will  a  Court  take  jurisdiction  to  decide  con- 
troversies in  internal  management  of  foreign  corporations  ?  When 
does  the  Court  not  have  jurisdiction?  Name  eight  matters  that 
a  Court  will  not  decide  in  reference  to  a  foreign  corporation. 


TABLE  OF  CASES 


Adams   v.   Beall 828 

Alton  Mfg.  Co.  v.  Garrett 971 

American  Cotton  Oil  Co.  v.  Kirk  80 
American     Nat.     Bk.     v.     Nat. 

Fertilizer   Co 751 

Amsinck  v.  Bogers 768 

Ankeny  v.  McMahon 133 

A  ndrew  v.  Stinson 899 

Andrews  et  al.  v.  Bobertson. . . .  698 
Anderson  v.  Wisconsin  By.  .33,  516 
Arbuckle  Bros.  v.  Kirkpatrick.  441 

Arnold  v.  Delano 561 

Ash   v.    Guie 818 

Austin  v.  Holland 876 

Austin   v.   Kuehn 147 

Austin  v.   Seligman 434 

Auten  v.  Gruner 714 


B 


Babcock  v.  Farwell 1041,  1070 

Bagley  v.  Findlay 568 

Bain  v.  Withey  &  Ottman 464 

Baird   v.   Shipman 351 

Baldy  v.  Parker 156 

Ballen  &  Friedman  v.  Bank  of 

Krenlin   770 

Barker,  In  re 1033 

Barlow  v.  Cong.  Soc 347 

Barnes  v.  Suddard 969 

Barnes  v.   Vaughn 739 

Bartlett      v.      First      National 

Bank    648 

Bartholomew   v.    Jackson 30 

Bass  Furnace  Co.  v.  Glasscock.  313 

Beach  v.  M.  E.  Church 39 

Becker  v.  Hart 694 


[refeeences  aee  to  pages] 

Bedford  B.  K.  Co.  v.  Bowser. . .  997 

Bell  v.  Baxter 97 

Belz  v.  McMorrow 508 

Bellows  v.  Sowles. 142 

Berenson  v.  L.  &  L.  Fire  Ins. 

Co 609 

Bernard  v.  Taylor Ill 

Best  Brewing  Co.  v.  Klassen .  . .   968 

Bessenger  v.  Wenzel 743 

Bierne  v.  Dord 483 

Biewer  v.  Mueller 55 

Bird  v.  Munroe 139 

Bixby  v.   Moore 130 

Blank  v.  Aronson 310 

Blinn   v.   Schwartz 275 

Blinns  v.  Waddell 866 

Booth  v.  Spuyten 243 

Bowes  et  al.  v.  Shand 226 

Brady  v.  Cole 55 

Bradwell    v.    Pryor 690 

Brisbane  v.  D.  L.  &  W.  B.  B. 

Co 1010 

Broadax  v.  Ledbetter 31 

Brown  v.  Foster 231 

Bryans  v.  Nix 507 

Buckley  v.  Huinason 117 

BuU  v.   Griswold 151 

Burwash  v.  Ballou 1015 

Burley  v.  Tufts 520 

Butler  Bros.  Co.  v.  U.  S.  Bub- 

ber  Co 1061 


Calais  Steamboat  Co.  v.  Scudder  527 

Canning  Co.  v.  Stanley 975 

Carlson   v.   Kenealy 628 

Casco  National  Bank  v.  Clark. .   343 
Case  v.  Beauregard 894 


1073 


1074 


TABLE  OF  CASES 


[references 
Central  Lumber  Co.  v.  Kelter. .  "967 

Chambers  v.   Seay 412 

Challis  v.  McCrum 728 

Chapman  v.  Haley 123 

Chase  v.  Hinkley 152 

Claflin  v.  Lenheim 419 

Chicago  Edison  Co.  v.  Fay 1019 

Clandeboye     59 

Clason  v.  Bailey 161 

Cleveland      Rolling      Mills      v. 

Ehodes    188 

Cohn  et  al.  v.   Plumer 257 

Columbus  Buggy  Co.,  In  re ...  .  435 

Columbian  Bank  v.  Bowen 

734,    767,  792 

Combs  v.  Scott 295 

Commonwealth   v.    Hemingway.  1044 
Commercial    Bank    of    Erie    v. 

Norton  &  Fox 322 

Congar    v.    Chicago    &    North- 
western E.  E.  Co 384 

Converse  v.  Emerson 976 

Cook  v.  Colehan 639 

Coursole  v.  Wyerhauser 5 

Corbin  v.  Tracy 253 

Craft  v.  S.  Boston  E.  E 389 

Cream  City  Glass  Co.  v.  Fried- 
lander    554 

Cromwell  v.  County  of  Sac 700 

Cunningham  v.  Castle 401 

Cushion  Heel  Shoe  Co.  v.  Hartt.   948 
Curtiss  v.  Leavitt 963 

D 

Dale  v.  Gear 730 

Daniel   v.   Atlantic    Coast   Line 

R.  E.  Co 394 

Darrow  v.  Calkins 903 

Dartmouth  College  v.  Woodward  938 

Dorris  v.  Kings 150 

Demarest  v.  Dunton  Lumber  Co .   206 

Dempsey  v.  Chambers 290 

Dempster  Mfg.  Co.  v.  Downs  & 

Mullen    1012 

Dentzel  v.  Island  Park  Asso.  ...  511 
Denver  Fire  Ins.  Co.  v.  McClel- 
land      982 

Diamond  Match  Co.  v.  Eoeber.  .   102 


ARE  TO  PAGES] 

Distilling  &  Cattle  Feeding  Co. 

v.  People 105 

Distilled  Spirits,  The 386 

Doernbecher    v.    Columbia    City 

Lumber  Co 1045 

Doherty  v.  Shipper  &  Block.  . .  333 
Dowling  v.  Exchange  Bank. .  . .  709 
Duplex    Safety    Boiler    Co.    v. 

Garden    232 

Dupont  Demours  Powder  Co.  v. 

Jones     806 

Duval  v.  Wellman 124 

E 

Eberts  v.  Selover 300 

Echols  v.  State 266 

Edwards  v.  Dillon 863 

Ehrler  v.  Braun 713 

Ehrmantraut   v.    Eobinson 298 

Eichelroth   v.   Long 578 

Eldridge  v.  Finniger 408 

Elias  v.  Whitney 680 

Elliott  v.  Caldwell 230 

Ernst  v.  Elmira  Municipal  Im- 
provement   Co 1008 

F 

Farrell  v.  E.  &  D.  E,  E.  Co. .  .   563 

Fawcett  v.  Osborne 522 

Fitts  v.  Hall 21 

First  National  Bank  v.  Buttery  642 

First  Nat.  Bk.  v.  Gustin  Co 1006 

First  Nat.  Bk.  v.  Leach 798 

First  Nat.  Bk.  v.  Lightner 621 

First  Nat.  Bk.  v.  Miller 752 

First  Nat.  Bk.  v.  McCullough.  .   671 

First  Nat.  Bk.  v.  Sprague 323 

First  Nat.  Bk.  v.  Skeen 703 

Fisher  v.   Leland 681 

Foley  v.    Felrath 498 

Forsyth  Mfg.  Co.  v.  Castlen.447,  171 
Four  Oil  Co.  v.  United  Oil  Pro- 
ducers          42 

Fox  v.  Turner 38 

Fox  v.  Eyan 331 

G 

Galusha   v.    Sherman 65 

Gann  v.  Zettler 307 


TABLE  OF  CASES 


1075 


[references 

Gault  v.  Stormont 158 

Geary  v.  Physic 607 

German-American  Bk.  v.  Milli- 

man   740 

Gillette  v.  Hodge 686 

Goddard  v.  Binney 157 

Goodrich  v.  Tenney 122 

Goodwin  v.  Hardy 1038 

Goodyear  Co.  v.  Selz  Schwab  & 

Co 194 

Gordon  v.  Levine 793 

Gove  v.  Vining 758 

Grand  Av.  Hotel  Co.  v.  Whar- 
ton      479 

Graves  v.  Johnson 118 

Gregory  v.  Lee 18 

Green  v.  Green 11 

Greenhood  v.  Keaton 368 

Greenwood  Groc.  Co.  v.  Canadian 

County  Mill  Co 513 

Greenwood  v.  Spring 274 

Grigsby    v.    Stapleton 57 

Grommes  v.  St.  Paul  Trust  Co.   212 
Grooms  v.  Olliff 704 

H 

Hadley  v.  Baxendale |.  248 

Hagardine  Co.  v.  Beynolds 35 

Hahn  v.   Fredericks 489,  493 

Hamer  v.  Sidway 83 

Hamilton  v.  Gordon 496 

Hanauer  v.  Doane 119 

Hanford  v.  McNair 280 

Hanna,   In  re 216 

Harrill  v.  Davis 824-943 

Harvin  v.  Galluchat 214 

Hawes  v.  Oakland 1039 

Hawkins  v.  McGroarty 292 

Hazzard  v.  Shelton 790 

Hendren  v.  Wing 833 

Henry  v.  Caruthers 905 

Henry  v.  Heeb 287 

Hereth  v.  Meyer 613 

Hertzog  v.  Hertzog 180 

Hobart  v.  Young 460 

Hobbs  v.  Massasoit  Whip  Co . .  .  43 

Hochster  v.  De  La  Tour 234 

Hodges  v.   Schuler 633 

Hogan  v.  Stophet 85 


ARE   TO   PAGES] 

Holbrook  v.  Payne 215 

Hosier  v.   Beard 712 

House  v.  Beak 501 

Howell  v.  Harvey 897 

Huber  Mfg.  Co.  v.  Watson 330 

Hun  v.  Cary 1053 

Hyman   v.   Doyle 732 

I 

I.  D.  &  W.  R.  Co.  v.  Fowler. . .  52 
Imperial  Building  Company  v. 

Board  of  Trade 943 

Indiana  Fuel  Supply  Co.  v.  In- 
dianapolis Basket  Co 50 

International   Harvester   Co.   v. 

Voboril    67 

International  Text  Book  Co.  v. 

Pigg    1065 

In    re   Barker 1033 

In  re  Columbus  Buggy  Co 435 

In  re  Estate  of  Speed 923 

In  re  Fishel 113 

In  re  Journalists  Funds 962 

In  re  Mathiason  Mfg.  Co 1030 

Insurance  Co.  v.  Davis 424 

J 

Jaffray  v.   Davis ? 92 

Jarvis  v.  Manhattan  Beach  Co.  1016 
Jefferson  Bank  Co.  v.  C.  W.  L. 

Co.    ..., 701-865 

Jenkins  Bros.  v.  G.  V.  Eenfrow 

&  Co 382 

Jennings  v.  Stannus 827 

Joel  v.  Morrison 400 

Johnson's     Admr.     v.     Seller's 

Admr 86 

Johnson  Co.,  The  G.  S.  v.  Be- 

loosky    530 

Johnson     v.     N.     Y.     Central 

Transp.   Co 316 

Johns  v.  Jaycox 372 

Jones  v.  Cooper 144 

Jones  v.  Dexter 841 

Jones  v.  Home  Furniture  Co. . .  607 

Jones  v.  Just 472 

Jordan  v.  Patterson 251 

Judge  v.  Braswell 859 


1076 


TABLE  OF  CASES 


Kadish  v.  Young 235 

Kansas    City    Paper    House    v. 

Foley  Rwy.  Prtg.  Co 108 

Karraker  v.   Eddelman 875 

Kayton  v.  Barnett 376 

Keighley,    Maxstead    &    Co.    v. 

Durant    282 

Keighler  v.  Savage  Mfg.  Co ... .   307 

Keith  v.  Jones 635 

Keller  v.  Holderman 32 

Kelley  v.  Thuey 409 

Kelley  v.  Hemingway 640 

Kelley  v.  Whitney 684 

Kelley  v.  Eiley 245 

Kempner  v.  Kohn 37 

Kendall  v.  West 233 

Kingan  &  Co.  v.  Silvers 270 

Kimberly  v.  Patchin 491 

Kingsley  v.  Davis 381 

Kingston  v.  Preston 237 

Kinnan  v.  Sullivan  Co 1037 

Kirkeby  v.   Erickson 149 

Kirven  v.  Virginia 1064 

Kohn  v.  Milcher 120 

Komorowski   v.   Krumdick 370 

Kriler  v.   Trustees  of   Western 

College    302 


Laing  v.  Butler 379 

Lathrop  v.  Adams 871 

Law  v.  Stokes 335 

Lusk  v.  Throop 146 

Leavitt  v.  Puttman 668 

Lebourdais    v.    Vitrified    Wheel 

Co 485 

Lenz  v.  Harrison 438 

Lew  v.  Mayer 390 

Lindsay  v.  Stranahan 852 

Linz  v.  Shuck '. 88 

Lloyd  v.  Grace 392 

Lomita  L.  &  W.  Co.  v.  Robin- 
son    947 

London  Guarantee  Co.  v.  Hoin.  217 

Louisville  Co.  v.  Lorick 159 

Low  v.  Pew 448 

Lowman  v.  Sheets 862 


[references  are  to  pages] 

Lucas  v.  W.  U.  Tel.  Co 45 

Lusk  v.    Throop 146 

Lyon  &  Co.  v.  Kent 276 


M 

Maclay  v.  Harvey 34 

Mallin  v.  Wenham 210 

Marbury  Lumber  Co.  v.  Stearns  478 

Market  St.  Co.  v.  Hellman 1035 

Markey  v.  Corey 666 

Marr  v.  B.  C.  R  &  N.  Rwy.  Co. .  144 

Martin  v.  Chauntry 632 

Mass.  Nat.  Bank  v.  Snow 658 

Mason   v.   Eldred 880 

Matthews  v.  Houghton 633 

McCormick  v.  Kelley 466 

McCormick  v.  Dunville 581 

McKellop  v.  Dewitz 416 

McKennon  v.  Winn 179 

McKinley  v.  Watkins 98 

McMann  et  al.  v.  Walker 721 

McNamara   v.   Jose 691 

Meany  v.  Pool  &  McCord 622 

Melroy  v.  Kemerer 93 

Melton  v.  Pensacola  Bank 660 

Merchants  Bank  v.  Nichols....  363 

Merrill  v.   Kenyon 379 

Metcalf   v.   Bradshaw 847 

Minneapolis  Threshing  Machine 

Co.  v.  Davis 989 

Mitchell  v.  Catehings 682 

Mitchell   v.    Pinckney 468 

Mills  v.  Mills 107 

Mills  v.  Wyman 84 

Mitchell  v.  Reed 843 

Moe,  Chas.  v.  J.  H.  Logue  Co. .  524 

Moore  v.  Han dley  Hardware  Co .  932 

Moore   v.   Bennet 104 

Moore  v.  TJ.  S 546 

Morgan  v.  Skiddy 992 

Moore  v.  Love 166 

Morrill  v.  Little  Falls  Mfg.  Co.  1028 

Mors  v.  Peterson 69 

Moskowitz  v.  Deutsch 765 

Mott  v.  Havana  Nat.  Bk 617 

Mucklow  Assignee  v.  Mangles.  .  503 

Mueller  v.  Stoecker 127 

Mulhall  v.  Quirin 209 

Muskogee  Land  Co.  v.  .Mull ins.  178 


TABLE  OF  CASES 


1077 


[REFERENCES 

N 

National  Bank  of  Bolla  v.  First 

Nat.  Bk 723 

National  Cash  Beg.  Co.  v.  Town- 
send  53 

National     Exchange     Bank     v. 

Lester   716 

•National  Home  Building  &  Loan 

v.  Home  Savings  Bank 979 

Nash  v.  Inman 15 

Nassau  Bank  v.  Jones 980 

New  v.  Wright 907 

Newberry  v.  The  Fashion 451 

Newhall  v.  Buckingham 882 

Nixa     Canning     Co.     v.     Leh- 
man     475-482 

North    Alaska    Salmon    Co.    v. 

Hobbs  Wall  &  Co 573 

North  v.   Moore 832 

O 

Oakley  v.  Carr 753 

O  'Connor  v.  Clarke 526 

Oppenheimer  v.  Bank 630 

Osgood's  Adm'rs  v.  Artt 677 

Otis,   Adm  'r  v.  Gardiner 1022 

Overland  Cotton  Mill  Co.  v.  The 
People     959 

P 

Pahlman  v.  Graves 893 

Paine  v.  Central  Vermont  B.  Co.  683 

Parker  v.  Bethel  Hotel  Co 924 

Paterson,  W.  A.  -Co.,  in  re 564 

Pence  v.  Carney 499 

Pennock  's  Appeal    519 

Pennsylvania  Iron  Wks.  Co.  v. 

Voght   Machine   Co 951 

People    v.    Chieago    Gas    Trust 

Co 961 

People  v.  Bochester  B,  &  L.  Co.  956 

People  v.  Bose 823 

People's  Pleasure   Park  Co.   v. 

Bohleder  927 

Peoria,  Etc.,  Co.  v.  Turney 481 

Percefull  v.  Piatt 834 

Perry  v.  Bigelow 652 

Perry  v.  Mt.  Hope  Iron  Co 545 


ARE  TO  PAGES] 

P.  &  F.  Corbin  v.  Tracy 253 

Phif er  v.  Erwin 453 

Philadelphia  Ball  Co.  v.  La  Joie  255 

Pinnell's  Case 89 

Poess  v.  12th  Ward  Bank 795 

Pope    v.    Hanke 112 

Porter  v.  Bright 470 

Preston   v.    Fitch 901 

Price  v.  Neal 723 

B 

Bail  v.  Little  Falls  Lumber  Co.  494 

Bann  v.  Hughes. '. 134-77 

Be  Co-Operative  Law  Co 936 

Bedland  's      Orange      Growers ' 

Ass  'n  v.  Gorman 556 

Be  W.  A.  Paterson  Co 564 

Beynold  et  al.  v.  General  Elec- 
tric Co 476 

Bice  v.  Winslow 129 

Bice  v.  Wood 308 

Bichards  v.  Shaw 544 

Bichmond  v.  Moore 116 

Biegel  v.  Amer.  Life  Ins.  Co..     48 

Bobinson  Bank  v.  Miller 836 

Bobinson  v.  Noble's  Adm'r 547 

Eoberts  v.  Smith 632 

Bock    v.    Collins 865 

Bockfield  et   aL    v.   First  Nat. 

Bk 725 

Eodgers  v.  Torrent 204 

Bogers  v.   Hanson 577 

Eohde  v.  Thwaites 505 

Bosenkrans  v.  Barker 872 

Bonan  v.  Bluhn 24 

Bubin  v.   Sturtevant 528 

Bussel  v.  Temple 928 

Byan    v.    Smith 20 

S 

Sanford  v.  Brown  Bros.  Co 582 

Sanger  v.   Hibbard 13 

Sarin  v.  Wilson 1021 

Schnell  v.  Nell 79 

Scott  v.  Buchanan 12 

Seitz  v.  Brewer's  Befrigerating 

Co 169 

Shea  v.   Donahue 909 

Singer  M'f 'g  Co.  v.  Bahn 267 


1078 


TABLE  OF  CASES 


[references 

Shindler  v.  Houston 163 

Siegel  v.  Bank 615 

Sloan  v.  Williams •. .   205 

Smith  v.  Aiker 229 

Smith  v.  Brown 189 

Smith  v.  Hale 469 

Smith  v.   Nightingale 624 

Snell  v.   Snell 26 

Snow  v.  Griesheimer 91 

Souter  v.  Kellerman 186 

Spadone  v.  Reed 147 

Springfield  Engine  Co.  v.  Sharp  499 
State  ex  rel.  Watson  v.  Stand- 
ard Oil   Co 929 

State  v.  Morriston  Fire  Ass'n. .   985 

Sterling  v.  Sinnickson 106 

Stitzel    v.    Millar.. 694 

Stout  v.  Baker 882 


Tarkington  v.  Purvis 73 

Telegram     Newspaper     Co.     v. 

Com 955 

Thomas  v.  Dakin 917 

Thompson  v.  First  Nat.  Bank. .   820 

Thompson  v.   Williams 747 

Thorpe  v.  Mindeman 624 

Thilmany  v.    Iowa   Paper   Bag 

Co 337 

Ticknor  v.   McClelland 537 

Towne  v.  Wiley 22 

Tutt  v.  Brown 405 

Twin  Lick  Oil  Co.  v.  Marbury.  .1047 

Tyler  v.  Moody  &  Offutt 463 

Tyler  v.   Bailey 211 

TJ 

Underwood  v.  Wolf 572 

Union    Trust    Co.    v.    Preston 

National  Bank   707 

United  Hardware  Co.  v.  Blue . .  165 


"Venner    v.    Chicago    City    By. 

Co 1031-1042 

"Vinton  v.   King 685 


ARE  TO   PAGES] 


w 


Wallis  Iron  Wks.  v.  Monmouth 

Park  Ass  'n    193 

Walker  v.  Nussey 168 

Walker   v.    Tucker 239 

Walker  v.  Walker 135 

Walls  v.  Bailey 176 

Ward  v.  Williams 303 

Warman  v.  First  Nat.  Bk 689 

Warner   v.   Mower 1025 

Warner  v.  Texas  R.  Co 153 

Warren  v.   Smith 146 

Watson   v.   Swann 285 

Watteau  v.  Fenwick 377 

Webb  v.  Fordyee 850 

Wentworth,     J.     H.,     Co.     v. 

French    1036 

Westfal  v.  Jones 212 

Wettlaufer  v.  Baxter 644 

Wharton  v.  McKenzie 19 

Wheeler  v.  Reed 341 

White  v.  Miller 391 

White   v.    Cushing 612 

Whitney  v.   Martin 320 

Wiedman  v.  Keller 481 

Wier  v.  Hudnut 167 

Wight  v.  R.  Co 1043 

Wilcox,  Gibbs  &  Co.  v.  Aultman  702 

Wilhelm  v.  Eaves 196 

Wilcox   v.   Routh 360 

Willetts  v.  Phoenix  Bank 648 

Wilson  v.   Carnley 110 

Wilson    v.    Wilson 318 

Wilson  v.  Finney 433 

Wilson  v.  Walrath 533 

Wilkins  v.  Usher 675 

Wisner  v.  First  National  Bank  773 
Wisconsin    Yearly    Meeting    v. 

Baber    652 

Wolff  v.  Koppel 327 

Wolf  v.  Mills 868 

Wood   v.    Boynton 51 

Wood  v.   Dummer 996 

Wood  v.  McCain 356 

Woodworth  et  al.  v.  Huntoon. . .   698 
Worden  v.  Dodge .623 


TABLE  OF  CASES 


1079 


[references  are  to  pages] 


Yeiser  v.  U.  S.  Board  &  Paper 

Co 945 

Yerrington  v.  Green 240 

Yockey  v.   Smith 444 


Zander    v.    N.    Y.    Security    & 

Trust  Co 646 

Ziff  Mfg.  Co.  v.  Pastorino 55 

Zimmerman   v.   Anderson 653 

Zottman  v.  San  Francisco 286 


INDEX 


[references  are  to  pages] 
A 

ACCEPTANCE— 

of  defective  performance,  229. 
of  goods  in  sales, 

what  constitutes,  554. 

as  barring  action  for  damages,  556. 

ACCEPTANCE  OF  BILLS  OF  EXCHANGE— 

denned,  770. 

how  made,  773. 

at  what  stage  to  be  made,  777. 

general  or  qualified,  777. 

presentment  for, 

required,   779. 

within  what  time,  779. 

requirements  of,  780. 

delay  in,  781. 
dishonor  by  refusing,  781. 

ACCEPTANCE  OF  CHECK,  795. 

ACCEPTANCE  OF  OFFER— 
completes  contract,  41. 
must  be  in  terms  of  offer,  42. 
may  be  by  conduct,  43. 
when  complete,  45. 

as  affected  by  '  •  Fraud, "  "  Mistake, "  "  Duress, "  "  Undue  Influence, ' » 
see  those  subjects. 

ACCEPTANCE  FOR  HONOE,  786. 

ACCOMMODATION  PARTY— 
defined,  664. 

ACCOUNT— 

reference  to,  in  negotiable  paper,  620. 

ACCORD  AND  SATISFACTION—  ' 
see  "Compromise  of  Claim." 

1081 


1082  INDEX 

[references  are  to  pages] 
ADMINISTRATORS— 
promises  by,  142. 

ADMISSIONS  BY  AGENT— 

binding  on  principal  when,  390,  391. 

AGENT— 

defined,  266,  267,  270. 

kinds  of,  273. 

capacity  to  be,  276. 

authority  of,  see  "Authority  of  Agent,"  "Ratification  of  Agency." 

rights  of,  see  "Duty  of  Principal." 

obligation  of,  see  • '  Duty  of  Agent, "  "  Rights  of  Third  Persons. ' ' 

see  also  ' '  Principal, "  "  Revocation  of  Agency, "  "  Notice  to  Agent. ' ' 

AGREEMENT— 

see  ' '  Offer  " ;  "  Acceptance  of  Offer  " ;  "  Discharge  of  Contracts. ' ' 

ALTERATION— 

discharges  contract,  247. 

of  negotiable  paper,  715,  716. 

ANTEDATING  PAPER,  654. 

ASSIGNMENT  OF  CONTRACT— 
meaning  of,  203. 
of  rights  thereunder,  204. 
of  obligations,  205. 
to  be  performed  in  future,  209. 
effect  of,  211,  212,  214. 
what  constitutes,  215. 

AUCTION  SALES— 

transfer  of  title  in,  516. 
fraudulent  bids  in,  519. 

AUTHORITY  OF  AGENT— 
how  derived,  278,  354. 
to  receive  payment,  354,  367. 
as  determined  by  apparent  scope,  356,  360. 
to  borrow  money,  361,  363. 
to  make  or  endorse  paper,  365. 
to  sell  personal  property,  367,  368,  369. 
to  extend  credit,  370. 
to  warrant,  372. 

AUTHORITY  OF  PARTNER  TO  BIND  FIRM— 

introductory,  859. 

to  purchase  real  estate,  857. 


INDEX  1083 


[refebences  are  to  pages] 
AUTHOEITY  OF  PARTNER  TO  BIND  FIRM— Cont. 
to  purchase  and  sell  generally,  861. 
to  warrant,  863. 
to  borrow  money,  864. 
to  bind  firm  on  notes,  etc.,  865. 
to  settle,  release,  etc.,  865. 
to  mortgage  and  pledge,  865. 
to  use  assets  to  pay  personal  debts,  866. 
to  make  admissions,  867. 
to  receive  notice,  867. 


BAILMENTS— 

defined  and  distinguished  from  sales,  433,  445. 

BANK— 

paper  payable  at,  743. 

BEARER— 

paper  payable  to,  647. 
transfer  of,  727. 

BENEFICIARIES— 

when  may  sue  on  contract,  201. 

BILATERAL  CONTRACTS— 
defined  3. 

BILL  OF  LADING— 
title  reserved  in,  513. 

BILLS  OF  EXCHANGE— 
defined,  767. 
inland  and  foreign,  769. 
acceptance  of, 

see  "Acceptance  of  Bills  of  Exchange." 
protest  of, 

see  "Protest." 
in  a  set,  789. 
see  also  "Presentment  for  Payment,"  "Notice  of  Dishonor. " 

BLANK— 

execution  of  paper  in,  659. 
failure  to  cancel,  715,  716. 
authority  to  fill  in,  660,  661. 

BREACH— 

by  renunciation,  234. 

as  affected  by  dependence  of  covenants,  237. 


1084  INDEX 

[REFERENCES   ARE   TO   PAGES] 

BREACH— Cont. 

injunction   against,   255, 

see  also  "Performance  of  Contracts." 

BROKER— 

marriage  procured  by,  124. 
acting  without  license,  117. 

BULK  SALES  LAW— 
provisions  of,  530. 

0 

CAPACITY— 

see  "Minors";  "Married  Women";  "Insane  Persons";  "Agent"; 
1 '  Principal. ' ' 

CAPITAL  STOCK— 
see  "Stock." 

CAVEAT  EMPTOR— 

as  applied  to  contracts  generally,  see  "Fraud  in  Consideration." 

CERTIFICATES  OF  STOCK— 
whether  essential,  987. 
see  also  ' «  Stock  "  •  "  Stockholders. '  * 

CERTIFICATION  OF  CHECK— 
effect  of,  795-798. 

CHARTER— 

see  also  "Powers  of  Corporation." 
association  without,  when  partnership,  824. 
a  contract,  938. 
when  defective,  943. 

CHECKS— 

denned,  792. 

when  to  be  presented,  793. 

acceptance  of,  794. 

as  assignment,  801. 

COLLATERAL— 
sale  of,  652. 

COMMERCIAL  PAPER— 

see  ' '  Negotiable  Paper. '  • 

COMPENSATION  OF  AGENT— 
express  agreement  for,  330. 
implied  agreement  for,  331. 


INDEX  1085 


[references  are  to  pages] 
COMPENSATION  OF  AGENT— Cont. 

when  agent  wrongfully  discharged,  333. 
when  agent  rightfully  discharged,  257,  259. 

COMPOSITION  WITH  CREDITORS— 
denned,  and  validity  of,  98. 

COMPROMISE  OF  CLAIM— 
validity  of,  91,  92,  93,  97. 

CONDITIONS— 

in  contracts,  237. 

in  sales,  459. 

see  also  ' '  Warranties. ' ' 

CONFESSION  OF  JUDGMENT— 
authorized  in  note,  652. 

CONSIDERATION— 

defined,  77,  78. 

adequacy  of,  79. 

promises  as,  80. 

what  constitutes  generally,  83. 

past  act  as,  84. 

moral  obligation  as,  84. 

legal  obligation  as,  85. 

contract  obligation  as,  86,  88. 

part  payment  of  debt  as,  89,  91,  92,  93,  97. 

composition  as,  98. 

in  negotiable  paper,  607,  663. 

CONSTRUCTIVE  CONTRACTS— 
defined,  180. 

CONSTRUCTION— 
rules  of, 

in  contracts,  185-191. 
in  negotiable  paper,  656. 

CONTRACTS— 

see  also  the  specific  heads, 
definition  of,  2. 
kinds  of,  3. 

CORPORATION— 
defined,  917. 
theory  of,  917. 
as  entity,  924. 
kinds  of,  935. 
purposes  for  which  formed,  936. 


1086  INDEX 

[REFERENCES   ARE  TO  PAGES] 
CORPORATION— Cont. 

generally  of  the  charter  of, 

see  ' '  Charter. ' ' 
de  facto,  943. 
promoters  of,  945. 
capacity  and  powers  of, 

see  ' '  Powers  of  Corporations, "  ' '  Ultra  Vires. ' ' 
stock  and  stockholders, 

see  « *  Stock, ' » '  *  Stockholders. ' ' 
directors,  see  "Directors  of  Corporations." 

CRIMES  OF  CORPORATIONS—    ■ 
power  to  commit,  955. 

D 

DAMAGES— 

liquidated  in  contract,  191,  198. 
rule  of,  248,  251,  253. 

DATE— 

in  negotiable  paper,  654. 

DEATH— 

as  affecting  offer,  39. 

as  discharging  contract,  239. 

as  dissolving  partnership,  899. 

DEFENSES— 

see  ' '  Holder  in  Due  Course. ' ' 

DEL  CREDERE  ACENCIES— 
denned,  326. 

DELEGATION  OF  AUTHOEITY  BY  AGENT— 
right  of,  321. 

DELIVERY  OF  GOODS— 

duty  of  seller  to  make,  542. 

concurrent  with  payment,  542. 

place,  time  and  manner  of,  543. 

in  wrong  quantity,  544. 

in  installments,  548. 

to  carrier,  552. 

acceptance  of,  see  "Acceptance." 

DELIVERY  OF  NEGOTIABLE  PAPER— 
when  presumed,  657. 
of  blank  paper,  659. 
lack  of,  as  defense,  709. 


INDEX  1087 

[references  are  to  pages] 
DEMAND  PAPER— 
is  negotiable,  637. 
when  overdue,  682,  688. 

DESTRUCTION  OF  SUBJECT  MATTER— 
as  affecting  contract,  451. 

DIRECTORS  OF  CORPORATIONS— 
election  and  qualification  of,  1043. 
title  to  office  of,  1044. 

meetings  of,  1045.  * 

are  trustees,  1047. 
liability  to  corporation,  1047. 
liability  to  third  persons,  1055. 

DISAFFIRMANCE— 

see  ' '  Fraud, "  "  Duress, "  "  Minors, ' '  and  other  specific  heads. 

DISCHARGE  OF  CONTRACTS— 
meaning  of,  225. 
by  performance,  255,  234. 
by  breach,  225,  239. 
by  impossibility,  239. 
by  agreement,  246. 
by  novation,  246. 
by  alteration,  247,  270. 
by  bankruptcy,  247. 
by  death,  247. 
of  negotiable  paper,  759. 

DISHONOR— 

see  ' '  Notice  of  Dishonor, "  "  Protest. ' » 

DISSOLUTION  OF  PARTNERSHIP— 

how  dissolved,  896. 
in  death,  899. 

DIVIDENDS,  1038. 

DOCUMENTS  OF  TITLE— 

transfer  of  ownership  by,  513,  539,  541. 

DUE  COURSE— 

see  ' '  Holder  in  Due  Course. ' ' 

DURESS— 

defined,  65,  67. 

in  negotiable  paper,  706. 


1088  INDEX 

[references  are  to  pages] 
DUTY  OF  AGENT— 

to  exercise  good  faith,  306, 

general  rule,  307. 

in  not  acting  for  both  parties,  307. 

in  not  dealing  with  himself,  310. 

in  not  competing  with  principal,  312. 

in  regard  to  personal  behavior,  313. 
to  obey  instructions,  316. 
to  use  prudence  and  skill,  310. 
not  to  delegate  authority,  321. 

DUTY  OF  PRINCIPAL— 

to  compensate  agent,  330-335. 


E 


EXAMINATION  OF  GOODS— 
right  to,  by  buyer,  553. 
see  also  "Acceptance." 

EXECUTORS— 

promises  by,  142. 

EXECUTORY  CONTRACTS— 
denned,  3. 
performing,  as  consideration,  86. 

EXPRESS  CONTRACTS— 
defined,  3. 

F 

FOOD— 

warranties  in  sale  of,  481. 

FOREIGN  CORPORATION— 
denned,  1059. 
rights  of,  1059,  1060. 
how  may  enter  home  state,  1063. 
what  is  doing  business  by,  1064. 
penalties  against,  for  non-compliance,  1068. 
jurisdiction  of  court  over,  1070. 

FORGERY,  DEFENSE  OF— 
in  negotiable  paper,  713. 

FORM  OF  CONTRACT— 

see  "Formal  Contract";  "Express  Contract";  "Implied  Contract"; 
"Parol  Evidence  Rule";  "Frauds,  Statute  of";  '■' Written  Con- 
tracts " ;  "  Oral  Contracts ' ' ;  etc. 


INDEX  1089 

[REFEBENCES   ABE   TO   PAGES] 


FOBMAL  CONTBACT— 
defined,  3,  132,  136. 

FBAUD  IN  CONSIDEBATION— 
elements  in,  53,  55. 
silence  as,  57. 
concealment  as,  57. 

disaffirmance  of  contracts  procured  by,  73. 
in  auction  sales,  519. 

FBAUD  IN  EXECUTION— 
defined,  51. 

FBAUDS,  STATUTE  OF— 
text  of,  137. 
history  of,  139. 
object  of,  139. 
cases  within,  141, 

promises  of  executors,  142. 

promises  of  guaranty,  etc.,  144. 

promises  in  consideration  of  marriage,  147. 

contracts  concerning  land,  149-151. 

contracts  for  more  than  year,  152. 

contracts  of  sale  of  goods,  155. 
what  is  compliance  with,  158,  168. 


Q 


GAMBLING  AGBEEMENTS— 
illegal,  111. 

GUABANTIES— 

must  be  in  writing,  144. 


HOLDEB  IN  DUE  COUBSE— 

importance  of  inquiring  who  is,  674. 
indorsement  necessary,  674. 
paper  must  be  regular  to  constitute,  680. 
must  purchase  paper  before  overdue,  681. 
must  give  value,  690. 

one  is,  who  purchases  from  holder  in  due  course,  698. 
amount  recoverable,  by,  700. 
defenses  not  available  against, 
payment  before  maturity,  702. 


1090 


INDEX 


[REFERENCES    ABE   TO   PAGES] 

HOLDER  IN  DUE  COURSE— Cont. 
defenses,  etc. — cont. 
set  off,  703. 

want  or  failure  of  consideration,  703. 
fraud  in  consideration,  704. 
duress,  705. 
illegality,  707. 
theft,  708. 
lack  of  delivery,  708. 
lack  of  authority,  709. 
defenses  available, 

personal  incapacity,  712. 
forgery,  12. 

material  alteration,  715. 
illegality,  720. 

HONOR— 

acceptance  for,  786. 
payment  for,  788. 


ILLEGAL  CONTRACTS— 

see  ' '  Legality  of  Contract. '  • 

ILLEGALITY— 

defense  of,  in  negotiable  paper,  707. 

IMPLIED  CONTRACTS— 
defined,  3,  180. 

IMPOSSIBILITY  OF  PERFORMANCE— 
when  excuses,  239. 

INCOMING  PARTNER— 

liability  of,  for  past  debts,  875. 

INDEPENDENT  CONTRACTOR— 
not  an  agent,  287,  278. 


INDORSEMENT— 
manner  of,  666. 
partial,  668. 
kinds  of,  669. 
where  several  payees,  670. 
of  paper  payable  to  cashier,  671. 
rules  and  presumptions  concerning,  672. 
liability  by,  725,  727,  729. 
see  also  ' '  Holder  in  Due  Course ' ' ;  "  Liability  of  Parties. ' ' 


INDEX  1091 

[REFERENCES   ABE  TO   PAGES] 


INFANTS— 

see  "Minors." 


INFLUENCE— 

see  ' '  Undue  Influence. ' ' 

INFOBMAL  CONTEACT— 
defined,  3. 

INJUNCTION— 

against  breach  of  contract,  255. 

INSANE  PEBSONS— 
contracts  of,  24. 
as  agents,  275 

INSANITY— 

as  affecting  offer,  39. 

INTEEFEEENCE  WITH  CONTEACT— 
damages  for,  217. 

INTEEPEETATION  OF  CONTEACTS— 
general  rules  of,  185. 
in  respect  to  time,  188. 
in  respect  to  penalty,  191. 
of  negotiable  form,  656. 


JOINT  STOCK  COMPANIES— 
defined,  823. 

JUDGMENT  NOTE— 
validity  of,  652. 


KINDS  OF  CONTEACTS,  3. 


LADING,  BILL  OF— 

see  • '  Bill  of  Lading. ' ' 
LAND— 

contracts  relating  to,  to  be  in  writing,  149. 

LEGALITY  OF  CONTEACT— 
an  essential  element,  101. 
in  restraint  of  trade,  102,  105. 


1092  INDEX 

[references  are  to  pages] 
LEGALITY  OF  CONTRACT— Cont. 
in  restraint  of  marriage,  106. 
in  corruption  of  public  service,  107. 
ag?.inst  public  policy  in  general,  110. 
of  a  wagering  nature,  111. 
of  usurious  nature,  113. 
made  on  Sunday,  116. 
made  without  license,  117. 

where  contemplated  by  one  party  only,  118,  119,  120. 
lack  of,  prevents  enforcement,  122. 
lack  of,  prevents  rescission,  123. 

except  in  certain  cases,  124,  131. 
of  sales  of  future  goods,  111,  449. 

LEGAL  OBLIGATION— 

as  consideration,  85. 

LIABILITY  OF  PARTNER— 
for  torts  of  copartner,  868. 
see  also  "Remedies  of  Creditors  of  Partner." 

LIABILITY  OF  PARTY  TO  NEGOTIABLE  PAPER— 
of  maker,  721. 
of  drawer,  722. 
of  acceptor,  723. 
of  transferror  by  delivery,  727. 
of  irregular  indorser,  725. 
of  regular  indorser,  729. 
procedure  to  charge, 

see  ' '  Presentment  for  Payment, "  ' '  Presentment  for  Acceptance, ' 
"Notice  of  Dishonor,"  "Protest." 

LICENSE— 

effect  of  lack  of,  on  contract,  117. 

LIQUIDATION— 

between  partners,  909. 

LIMITED  PARTNERSHIPS— 
denned,  822. 


M 


MAIL— 

contracts  made  by,  45. 

MALICE— 

denned,  221. 


INDEX  1093 

[references  are  to  pages] 


MARRIAGE— 

contracts  in  restraint  of,  106. 
procured  by  broker  illegal,  124. 
contracts  in  consideration  of,  147. 

MARRIED  WOMEN— 
contracts  of,  26. 

MEETINGS— 

of  stockholders,  1025. 
of  directors,  1045. 

MINORS— 
who  are,  5. 
contracts  of,  voidable,  5-14. 

ratification  of,  6,  7,  12,  13,  14. 

disaffirmance  of,  6,  7,  9,  11,  12,  13,  14. 
necessaries  supplied  to, 

liable  for,  15-21. 
torts  of,  21-24. 
as  agents,  276. 
as  principals,  274. 

MISTAKE— 

as  affecting  contract,  48,  51. 

MONEY— 

negotiable  paper  must  be  payable  in,  632. 

MORAL  OBLIGATION— 
as  consideration,  84. 


N 


NAME— 

of  partnership,  831. 

NECESSARIES,  CONTRACTS  FOR— 
see  ' '  Minors. ' ' 

NEGOTIABLE  PAPER— 
formal  requisites, 
enumerated,  606. 
writing  and  signature,  607. 
unconditional  promise  or  order,  609. 
certainty  of  sum,  624. 
payment  in  money,  632. 
time  of  payment,  637. 
payment  on  demand,  637. 


1094  INDEX 

[REFERENCES  are  to  pages] 
NEGOTIABLE    PAPER— Cont. 
formal  requisites — cont. 

fixed  or  determinable  time,  638. 

words  of  negotiability,  644. 
provisions  not  invalidating, 

provision  for  sale  of  collateral,  652. 

confession  of  judgment  clause,  652. 

waiver  of  exemption  laws,  653. 

seal,  date,  etc.,  654. 
rules  of  construction,  656. 
execution,  delivery  and  consideration,  657. 
negotiation  of,  665. 

see  also  "Indorsement." 
holder  in  due  course,  see  ' '  Holder  in  Due  Course. ' ' 
liability  of  parties,  see  ' '  Liability  of  Parties, "  "  Notice  of  Dishonor, ' ' 

"Presentment  for  Payment,"  "Protest." 
discharge  of,  759. 
bills  of  exchange,  see  •  •  Bills  of  Exchange.  • ' 

NEGOTIATION— 

see  "Indorsement." 

NOTICE  TO  AGENT— 
is,  to  principal,  382. 
within  scope  of  agency,  384. 
time  of,  to  be  given,  386. 
when  not,  to  principal,  388,  389. 

NOTICE  BY  OUTGOING  PARTNER— 
what  to  be  given,  876. 

NOTICE  OF  DISHONOR— 
provisions  of  act,  744. 
waiver  of,  756. 
not  required  when,  756. 
delay  in  giving  excused  when,  756. 

NOTICE  IN  NEGOTIABLE  PAPER— 
what  constitutes,  690. 


OBLIGATION— 

of  principal  to  agent,  see  "Duties  of  Principal." 
of  agent  to  principal,  see  ' '  Duties  of  Agent. ' ' 

of  principal  to  third  person,  see  ■ '  Rights  of  Third  Persons  Against 
Principal. ' ' 


INDEX  1095 

[REFERENCES   ARE   TO   PAGES] 

OFFER— 

propositions  not  constituting,  32. 
lapse  of,  34,  35,  39. 
withdrawal  of,  36. 
notice  of  withdrawal  of,  37. 
rejection  of,  38. 

acceptance  of,  see  "Acceptance." 

as  affected  by  "Fraud,"  "Mistake,"  "Duress,"  "Undue  Influence," 
see  those  subjects. 

OFFER  AND  ACCEPTANCE— 
see  "Offer,"  "Acceptance." 
necessary  to  contract,  30. 

OPERATION  OF  CONTRACTS— 
general  rule,  200. 

as  to  undisclosed  principals,  200   (and  see  also  "Undisclosed  Princi- 
pals"), 
as  to  beneficiaries,  201. 
as  to  assignees,  203. 
as  to  strangers,  217. 

OPINION— 

not  basis  for  fraud,  53. 

not  basis  for  breach  of  warranty,  464. 

ORAL  CONTRACTS— 
validity  of,  179. 

ORDER— 

in  bill  of  exchange,  607.        • 

OUTGOING-  PARTNER— 
liability  of,  876. 

OVERDUE  PAPER— 

is  negotiable,  see  ' '  Holder  in  Due  Course. ' ' 

OWNERSHIP— 

see  "Transfer  of  Title." 


PAROL  EVIDENCE  RULE— 
stated,  169. 

when  writing  incomplete,  174. 
when  several  writings,  174. 
customs  and  usages,  176. 
void  and  voidable  contracts  under,  178. 


1096  INDEX 

[REFERENCES  are  to  pages] 
PAETIES— 

capacity  of,  to  contract,  4. 

see  also  ' '  Minors, "  ' '  Married  Women, "  "  Insane  Persons, "  ' '  Aliens, ' ' 
' '  Agent, ' '  etc. 

PABTNEES— 

who  may  be,  827. 

mutual  rights  and  duties  of,  841,  857. 

PABTNEBSHIP— 
defined,  806,  809. 
an  association,  806,  808. 
an  association  in  co-ownership,  809,  818. 
by  estoppel,  820. 
kinds  of,  822. 

trading  and  non-trading,  822. 
limited  and  unlimited,  822. 
joint  stock  companies  as,  823. 
form  of  agreement  for,  824. 
as  result  of  defective  corporation,  824. 
who  may  form,  827. 
purpose  of,  830. 
name  of,  831. 
property  of, 

how  to  be  held,  833,  834. 

what  constitutes,  836. 

rights  and  obligations  of  members  of, 
toward  each  other,  841,  857. 
toward  others,  858,  895. 

see  "Authority  of  Partner,"  "Torts  of  Partner,"  "Eemedies  of 
Creditors  of  Partners. ' ' 
duration  of,  875,  879. 
remedies  of  creditors  of,  880-895. 
dissolution  of, 

by  lapse  of  time,  897. 

by  mutual  agreement,  898. 

by  transfer  of  partner 's  interest,  898. 

by  death  of  partner,  899. 

by  bankruptcy  and  court  decree,  907. 
title  of  surviving  member  of,  901. 
devolution  of  realty  of,  903. 

PAST  ACT— 

not  consideration,  84. 

PENALTY— 

not  enforceable,  190. 


INDEX  1097 


[BEFERENCES   ARE   TO   PA«ES] 

PERFORMANCE  OF  CONTRACT— 
must  be  in  accord  with  terms,  226. 
substantial,  sufficient,  227. 
defective,  acceptance  of,  229. 
when  to  be  to  other's  satisfaction,  231. 
of  contract  of  sale,  see  "Delivery,"  "Acceptance.1 

PERSONAL  DEFENSES— 
in  negotiable  paper,  702. 

PERSONAL  PROPERTY— 
sales  of,  see  "Sales,"  155. 

POSSESSION— 

as  indicia  of  title,  522. 

POST-DATING  PAPER,  654. 

POTENTIAL  EXISTENCE— 
sales  of  goods  having,  448. 

POWERS  OF  CORPORATION— 
inherent,  951. 
to  commit  torts,  951. 
to  commit  crimes,  955. 
express,  960. 
implied, 

in  general,  963,  968. 

to  acquire,  hold  and  grant  real  estate,  969. 

to  lease  and  sell,  971. 

to  borrow  money,  971. 

to  loan  money,  975. 

to  acquire  shares,  976. 
see  also  "Ultra  Vires." 

PRESENTMENT  FOR  PAYMENT— 

not  necessary  to  charge  maker  or  acceptor,  732. 

necessary  to  charge  drawer  and  indorser,  733. 

must  be  at  proper  place,  738. 

must  consist  in  exhibition  of  instrument,  739. 

must  be  at  proper  hour,  739. 

must  be  to  proper  person,  741. 

not  required  and  refused  when,  742. 

PRESIDENT— 

duty  and  power  of,  1057. 

PRICE— 

denned,  453. 

how  determined,  453. 


1098  INDEX 

[REFERENCES   ARE  TO   PAGES] 

PRINCIPAL— 

capacity  to  act  as,  274. 

authority  of,  see  ' '  Authority  of  Agent, "  "  Ratification  of  Agency. ' ' 

rights  against  agent,  see  "Duty  of  Agent." 

liability  to  third  persons,  see  "Rights  of  Third  Persons";  "Authority 

of  Agent";  "Undisclosed  Principal." 
liability  to  agent,  see  ' '  Duty  of  Principal. ' ' 
see  also  ' '  Agent. ' ' 

PROMISES— 

indefinite  not  enforceable,  80. 
in  promissory  notes,  609. 

PROMISSORY  NOTES— 
defined,  792. 
see,  generally,  "Negotiable  Paper.' * 

PROMOTERS— 

rights  and  duties  of,  945. 

PROPERTY  OP  PARTNERSHIP— 
what  constitutes,  836. 
in  what  name  to  be  taken,  833,  834. 
title  of  surviving  partner  in,  901. 

PROSPECTUS— 

liability  for  issuing  false,  1056. 

PROTEST— 

necessary  when,  783. 
requirements  as  to,  783. 
by  whom  to  be  made,  784. 
when  and  where  to  be  made,  784. 
for  better  security,  786. 
dispensed  with  when,  786. 


QUALIFIED  INDORSER— 
liability  of,  727. 


QUASI  CONTRACTS,  180. 


RATIFICATION— 

of  minor 's  contract,  see  ' '  Minors. ' ' 

RATIFICATION  OF  AGENCY  BY  PRINCIPAL— 
by  bringing  suit,  369,  304. 


INDEX  1089 

[references  aee  to  pages] 
RATIFICATION  OF  AGENCY  BY  PRINCIPAL— Cont 
defined,  282. 
what  essential,  282. 
what  acts,  286. 
formalities  of,  292. 
knowledge  necessary  to,  295. 
of  part,  300. 
effect'  of,  305. 

REAL  DEFENSES— 

in  negotiable  paper,  712. 

REMEDIES  OF  BUYER— 
for  failure  to  deliver,  571. 
for  breach  of  warranty,  572. 

REMEDIES  OF  CREDITORS  OF  PARTNERS— 
against  partners  jointly,  880. 
against  each  in  solido,  881.       * 
against  firm  assets  at  law,  881. 
against  individual  assets  of  partner,  882. 
against  firm  assets  for  individual  debt,  882. 
against  assets  in  equity,  888. 

REMEDIES  OF  SELLER— 
damages,  248,  568. 
specific  performance,  249. 
lien,  561. 

right  of  stoppage,  563. 
resale  and  rescission,  567. 

REMEDY— 

for  breach  of  contract, 
damages,  248. 
specific  performance,  253. 
injunction  against,  255. 
by  party  guilty  of  breach,  257. 
in  sales,  560. 

RESCISSION— 

see  * '  Mistake, "  **  Fraud, "  "  Undue  Influence, "  '  •  Duress, '  •  "  Minors,  • ' 
"Legality." 

RESTRAINT  OF  TRADE— 
contracts  in,  102-105. 

REVOCATION  OF  AGENCY— 
power  of,  412. 
no  power  of,  when,  412. 


1100  INDEX 

[references  are  to  pages] 
EEWAEDS— 

acceptance  of,  31. 
recovery  of,  by  officer,  85. 

EIGHTS  OF  AGENT— 

see  "Duty  of  Principal." 

EIGHTS  OF  PEINCIPAL— 

against  third  persons,  404. 

against  agent,  see  ' '  Duty  of  Agent.  • ' 

EIGHTS  OF  THIED  PEBSONS— 
against  principal, 

in  general,  355. 

see  ' '  Authority  of  Agent. ' ' 
against  agent, 

when  lacks  authority,  337. 

when  principal  undisclosed,  341. 

by  form  of  contract,  343. 

in  tort,  351. 

S 

SALES  OF  PEESONAL  PEOPEETY— 
to  be  in  writing  when,  155. 
distinguished  from  contracts  to  sell,  432. 
distinguished  from  gifts,  432. 
distinguished  from  bailments,  433. 
when  not  in  existence,  447. 
in  undivided  shares,  451. 
as  affected  by  destruction  of  goods,  451. 
includes  what  subject  matter,  451. 
price  in,  453. 
conditions  in,  459. 
warranties  in,  see  ' '  Warranties. ' ' 
liability  for,  to  subpurchaser,  for  negligence,  485. 
transfer  of  title  in,  see  "Transfer  of  Title." 
performance,  see  "Delivery,"  "Acceptance  of  Goods." 
remedies,  see  '  •  Eemedies  of  Seller, "  "  Eemedies  of  Buyer. ' ' 

SAMPLES— 

power  of  agent  to  sell,  369. 
warranties  in  sale  by,  471,  475,  482. 

SEAL— 

contract  under,  classified,  3. 
defined,  132. 
form  of,  132. 
abolition  of,  133. 


INDEX  HOI 

[references  are  to  pages] 


SEAL— Cont. 

effect  of,  134,  135. 

on  negotiable  paper,  654. 

SECRETARY— 
office  of,  1057. 

SERVANT— 

see  ' '  Agent. ' ' 

SETTLEMENT— 

see  ' '  Compromise  of  Claim, "  "  Composition. ' ' 

SHARES— 

see  "Stock." 

SIGNATURE— 

under  statute  of  frauds,  158. 

form  of,  by  agent,  343,  347,  349,  662. 

under  negotiable  instruments  law,  607,  662. 

SPECIALTIES— 
denned,  3. 

SPECIFIC  PERFORMANCE— 
decree  for,  when  allowed,  253. 

STATUTE  OF  FRAUDS— 
see  "Frauds,  Statute  of." 

STOCK— 

defined,  985. 

division  into  shares,  986. 
certificates  of,  987. 
subscription  to,  989. 

upon  condition,  989. 

fraud  in  securing,  992. 

liability  upon,  996. 

payment  of,  999. 
transfer  of,  1008. 
lien  of  corporation  on,  1012. 
lost,  stolen  and  forged  certificates  of,  1016. 

STOCKHOLDERS— 

liability  to  corporation,  996. 

trust  fund  doctrine  applied  to,  996. 

meetings  of,  1025. 

vote  of,  1025. 

right  to  prevent  illegal  acts,  1039. 

right  to  inspect  books,  1042. 


1102  INDEX 

[references  are  to  pages] 
SUM  IN  NEGOTIABLE  PAPER— 
must  be  certain,  624. 

SUNDAY  CONTRACTS— 
illegality  of,  116. 


TELEGRAPH— 

contracts  made  by,  45. 

\ 
TERMINATION  OF  AGENCY— 

how,  411. 

power  of,  412. 

where  agency  irrevocable,  412. 

by  operation  of  law,  423. 

THREATS— 

effect  of,  on  contract,  65,  69. 

TIME— 

is  of  essence  of  contract,  188. 
in  negotiable  paper,  637. 

TITLE,  TRANSFER  OF— 
see  ' '  Transfer  of  Title. ' ' 

TORTS  OF  AGENT— 

principal  liable  for,  267,  392. 
agent  liable  for,  351. 

TORTS  OF  CORPORATIONS— 
power  to  commit,  951. 

TORTS  OF  PARTNER— 
general  rule,  868. 
examples  of,  868. 

TRANSACTION— 

recital  of,  in  negotiable  paper,  607. 

TRANSFER  OF  TITLE— 

as  between  buyer  and  seller, 
rules  governing, 

where  goods  unascertained,  489. 

to  ascertain  intention,  493. 

presumption  of  immediate  transfer,  494. 

in  sales  on  approval,  497. 

upon  appropriation,  503. 

where  sale  at  particular  place,  511. 


INDEX  1103 


[REFERENCES   ARE  TO   PAGES] 

TRANSFER  OF  TITLE— Cont. 

as  between  buyer  and  seller — cont. 
reservation  of,  513. 
in  auction  sales,  516. 
as  affecting  third  persons, 

true  owner  estopped  when, 

not  by  mere  possession,  522. 
by  allowing  appearance,  527. 
by  giving  documentary  evidence,  527. 
in  case  of  recording  acts,  529. 
in  case  of  factors  acts,  530. 
in  case  of  bulk  sales  law,  530. 
when  seller  has  voidable  title,  532. 
when  seller  retains  possession,  533. 

TREASURER— 
office  of,  1057. 

TRUSTS— 

legality  of,  104,  105. 

U 

ULTRA  VIRES— 

see  also  "Powers  of  Corporations." 
meaning  of,  979. 

right  of  stockholder  to  object  to  act  of,  979. 
right  to  raise  defense,  980. 

UNDISCLOSED  PRINCIPAL— 

may  be  held  by  third  party,  376,  377,  378. 

UNDIVIDED  SHARES— 
sales  of,  451,  489. 

UNDUE  INFLUENCE— 
defined,  69. 
presumed  when,  71. 
disaffirmance  of  contracts  procured  by,  75. 

UNILATERAL  CONTRACT— 
defined,  3. 

USURY— 

defined,  173. 


VALUE,  IN  NEGOTIABLE  PAPER— 
must  be  certain,  624. 
may  be  what,  663. 
must  be  given  to  constitute  holder  in  due  course,  689. 


1104  INDEX 

[references  are  to  pages] 
VICE  PRESIDENT— 
office  of,  1057. 

W 

WAGEE  AGREEMENTS— 
illegal,  111. 

WARRANTY— 
express, 

power  of  agent  to  make,  372. 
defined,  460. 

the  affirmation  of  fact  therein,  460. 
what  is,  460. 

as  distinguished  from  opinion,  464. 
as  relied  on  by  the  buyer,  466. 
implied, 

of  title,  469. 

in  sale  by  description,  471. 
of  merchantability,  472. 
of  fitness  for  purposes,  472,  482. 
in  sale  by  sample,  482. 
none  to  subpurchasers,  485. 
remedy  for  breach  of,  572. 

WORDS  OF  NEGOTIABILITY— 

what  are,  644. 

WRITTEN  CONTRACTS— 

what,  must  be  in  form  of,  137. 

under  statute  of  frauds,  137,  168  (see  "Frauds,  Statute  of"). 

parol  evidence  rule  concerning,  168,  179. 

negotiable  paper  must  be  in  form  of,  609. 


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